FRANKFURT, March 27 German banks would not
favour including potential legal costs in upcoming stress tests
on European lenders, the head of a German banking group said,
after the U.S. Federal Reserve pointed out those risks in its
health check on lenders in the United States.
The head of the association of German banks (BdB), Michael
Kemmer, said on Thursday it would be too complex to address such
issues in the tests, which will check how a selected group of
European banks will hold up under certain stress scenarios.
"Stressing of legal risks is problematic in principle
because it implies using sweeping assumptions," said Kemmer,
managing director of BdB, whose members include large commercial
lenders Deutsche Bank and Commerzbank.
"It would stretch stress test methodology to the limit and
it would be a very difficult exercise," he said.
Legal risks and the buffers banks need to cover them are
already a challenge for banks themselves to quantify in their
annual financial accounts.
Such risks did not feature as a parameter in the U.S. stress
test scenarios but the Fed came to the conclusion that large
banks could face in the worst case another $151 billion of
losses related to potential litigation and other costs.
The ECB is due to take over responsibility for overseeing
the 128 largest euro zone banks in November. Its assessment of
banks' assets and liabilities as well as the stress tests to
root out potential hazards is aimed at giving it a clear picture
of the banks it will be supervising.
Kemmer said he had some doubts whether the ECB's testing of
banks would be completed in time.
"The timetable is extremely tough, and the data demands are
extremely high, not just for Germany but for other countries as
well," he said.
"Everything has to run optimally if we are to keep to
schedule, not just for the banks but also for those giving the
stamp of approval."
Kemmer said he expected the stress test exercise to build
confidence in the system, but warned against simplifying the
results into a pass-fail interpretation for individual banks.
Banks, for their part, were building their capital safety
buffers further where needed, he said.
"Capital measures are certainly already being prepared," he
(Reporting by Jonathan Gould, Eva Taylor and Andreas Framke)