By Laura Noonan
DUBLIN, March 10 The European Central Bank's
stance on how bad loans are defined will be one of the biggest
revelations in an announcement on Tuesday on how it will test
the balance sheets of the euro zone's largest banks, three
sources with knowledge of the tests told Reuters.
The details will give the 128 banks being tested their most
explicit insight to date on how their books will be examined by
inspectors deciding whether they need billions of euros of extra
The tests are being done to restore investor confidence and
clean up any lingering problems in the euro zone's banks before
the ECB becomes their supervisor in November.
The methods some euro zone banks use to decide if a loan has
turned sour will fall short of those in the ECB's review of
banks' loan books, a source with knowledge of the matter said.
The rules will require that new valuations must be done for
any collateral that had not been valued within a year of January
2014, two of the sources said, and will also set the banks
estimates of loan losses against 'challenger models' created by
The ECB declined to comment.