FRANKFURT The European Central Bank's (ECB) determination to subject the euro zone's largest banks to the same, rigorous checks is being tested, with countries lobbying for their banks to be treated differently and lenders asking for their workload to be eased.
Almost two weeks after the ECB published a 285 page manual spelling out how it will examine banks' trillions of euros of assets, lenders in Germany and Spain are leading the charge for special treatment, while banks across the euro zone have asked for changes to the process to make it less onerous.
The ECB has resisted the lobbying from Spanish and German banks, but has agreed to adapt the data gathering process following some field testing, issuing revised guidance on this in recent days, sources familiar with the matter told Reuters.
The central bank is carrying out the wide-ranging tests so it can start with a clean sheet when it becomes the euro zone's banking supervisor in November. The tests are designed to banish lingering investor doubts about the health of the region's banks that have kept their valuations consistently below U.S. peers.
LEVEL PLAYING FIELD
A key ECB objective is for the tests to be consistent across all 18 euro zone countries, so results are directly comparable.
Banks in Spain have pushed for an easing of rules requiring collateral to be independently valued if existing valuations are more than a year out of date, Reuters reported last week.
Sources close to the matter told Reuters German banks were also lobbying against automatic writedowns on collateral with older valuations, arguing Germany's housing market is stable, and so there is no need for frequent valuations.
The ECB declined to comment on the specific cases, but a spokesman said that, consistent with the goals of building confidence and a level playing field for all banks, there were no exceptions to the rules laid out in the test manual.
Two sources familiar with the process said the ECB had made clear it was not open to molding the tests to the demands of national regulators or banks, since to do so could open a flood or requests.
"Any form of exceptions for specific geographies would likely undermine the spirit of the review - to measure all banks with the same yardstick," said Ronny Rehn, co-head of European banks research at London-based KBW.
Central banks from some of the countries whose lenders were hit hardest in the global financial crisis said they were supportive of the ECB's plans.
A senior official at the Bank of Greece said his country did not have an issue with the terms laid out in the manual, comments echoed by a spokeswoman for Ireland's central bank.
"The methodology of (the) asset quality review and stress tests is and will in principle be the same for all banks included, although some characteristics of national banking systems will be considered," the Bank of Slovenia told Reuters.
Tom McAleese, a Dublin-based consultant with Alvarez & Marsal who has worked on European bank reviews, said there were some cases where countries could reasonably ask for national adaptations if their banking system genuinely had unique characteristics. "It shouldn't be a free for all," he added.
The ECB has shown more flexibility around the area of data collection, with three sources telling Reuters the central bank had agreed to change the way it asked banks to provide data to make the process more manageable for them.
The sources said the revised approach would not lessen the information available to the ECB, but would reduce the risk of banks' missing deadlines, something it is keen to avoid.
The change means banks no longer have to fill out complex sheets of data for the ECB and also hand original loan files to auditors, a system banks argued was doubling up the work.
"The ECB has issued a revised draft template which reflects a reduction in the banks' responsibility to complete templates, while not in any way reducing the degree of detail (available to auditors)," one source familiar with the process said.
"The final output of the AQR (asset quality review) doesn't change one jot," the source added.
An ECB spokeswoman said it was committed to creating a level playing field with comparable situations and comparable results. "Different treatment is not an option," she said.
As a result, the ECB had to push banks to their limits with respect to data requests, harmonized definitions and comparable descriptions, and through field tests it got an understanding of what was feasible in terms of timing and content.
"That is why the adjustment of data requests is a necessary procedure, which does not mean we want to lessen banks' work load per se," the ECB spokeswoman said.
(This story has been refiled to correct typographical error in headline spelling of 'back')
(Editing by Mark Potter)