UPDATE 1-ECB to ease stress test for Franco-Belgian Dexia

Thu May 22, 2014 2:51pm EDT

* Dexia would be exempted from crisis case stress scenario

* Dexia already singled out as special case

* Franco-Belgian group being gradually wound down (Adds sense of Dexia as unique case, Dexia background)

By Laura Noonan and Paul Carrel

DUBLIN/FRANKFURT, May 22 (Reuters) - ECB officials agreed on Thursday that Franco-Belgian bank Dexia would not have to prove it could withstand a financial crisis in a Europe-wide stress test, reducing the chances of it needing further state aid, sources familiar with the talks said.

Belgium and France have already pumped nearly 12 billion euros ($16.4 billion) into Brussels-based Dexia since the financial crisis, taking control of it in the process, and are keen not to put in more to a loss-making institution that is being wound down.

Dexia, the European Central Bank and the EBA (European Banking Authority) all declined comment.

The ECB's supervisory board agreed at a meeting in Frankfurt to recommend to the central bank's governing council that Dexia must only prove it has enough capital to weather the most likely economic scenario, and not the crisis scenario other banks must prove they can withstand.

Dexia, which will come under the ECB's direct supervision in November, was originally on the list to take part in a stress test being carried out on 128 euro zone banks to prove they have enough capital to withstand another crisis.

However, the ECB had already recognised Dexia's "specific situation", with an assessment of its finances carried out over its 2011 wind-down plan.

That EU-approved plans makes Dexia unique among the 128 major euro zone banks being reviewed by the European Central Bank (ECB) and the 124 EU banks that are being subjected to stress tests by the European Banking Authority (EBA).

One source who spoke to Reuters said Dexia, formed by a Franco-Belgian merger in 1996, was indeed a unique case and its treatment should not have implications for other banks which have been arguing against various elements of the stress tests.

The stress tests and a related review by the ECB have already prompted several banks to raise funds, most recently Deutsche Bank, which on Sunday announced plans to raise 8 billion euros. (ID:nL6N0O40WU)

Dexia's chief executive said in March the bank was at risk of failing the EU review and might need to raise capital again - money that would most likely come mainly from the French and Belgian treasuries which currently guarantee much of Dexia's borrowings.

Belgium, France and other shareholders put 6 billion euros into Dexia at the height of the global financial crisis in 2008. The bank subsequently secured guarantees for its borrowings from the two states and, to a lesser extent from Luxembourg. These now total some 79 billion euros.

Dexia has said it aims to reduce that to 45 billion euros by the start of 2015. Belgium and France paid in another 5.5 billion euros in total in 2012, effectively nationalising Dexia after persistent losses had eaten into its assets.

($1 = 0.7323 Euros) (Additional reporting by Phil Blenkinsop and Huw Jones; Editing by Alexander Smith and David Evans)

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