Top German banker slams ECB for 'arbitrary' stress tests

FRANKFURT (Reuters) - A top German banker has accused the European Central Bank of acting arbitrarily and inconsistently with tests designed to check the stability of the eurozone’s biggest banks, saying they seemed designed to disadvantage the strongest institutions.

The head of Germany’s powerful Sparkassen savings banks association, Georg Fahrenschon, said economic assumptions built into the ECB’s stress tests varied widely between countries and could lead to the wrong results.

“These assumptions are not transparent and seem somewhat arbitrary to say the least,” Fahrenschon said. “The tests seem most concerned with the healthy banks under the motto of, whoever is healthiest can get the most sick.”

The ECB is putting the euro zone’s 131 largest banks through an unprecedented health check before it becomes their supervisor in November as part of a broader push for closer financial integration to make future crises less likely.

While banks in France and Spain need to test their balance sheet strength using models that assume a 5 percent fall in real estate prices, German banks need to assume a 15 percent fall, Fahrenschon said at a banking conference.

Some banks have had to apply surprise haircuts of 10 percent to 20 percent on asset classes such as ship financing or real estate, he said. This opened the ECB to criticism that it was operating with a political agenda, he said.

Markets are becoming increasingly nervous about how the banks fared in the year-long test, seen as crucial to reviving confidence in the sector.

ECB Executive Board member Sabine Lautenschlaeger responded to Fahrenschon’s criticisms, saying regulators had applied a uniform testing model across the euro zone.

“There is no unequal treatment,” she said, speaking at the same conference.

Germany’s savings banks will be more exposed to any future trouble that may emerge from the country’s public sector banks.

Under the rules it will be more difficult for Germany’s state governments, which are majority owners of most of the public sector banks, to bail them out, which means that the savings banks, which also have stakes in the public sector banks and operate a mutual guarantee scheme with them, could be on the hook to help them out.

The new European rules are set to be introduced in 2016 but Germany is introducing them a year earlier.

(This story has been refiled to add dropped word ‘has’ in first paragraph)

Additional reporting by Carmel Crimmins and Eva Taylor; Writing by Thomas Atkins; Editing by Greg Mahlich