FRANKFURT/LONDON (Reuters) - Euro zone banks will be allowed to avoid complex new definitions for bad loans in their first data submissions in next year’s European Central Bank health check, winning a temporary reprieve from their heavy data-gathering burden.
The European Banking Authority (EBA) rolled out new definitions for assessing when loans go bad and the impact of restructured loans in October, so that banks could not use national definitions to obscure their true state in upcoming EU-wide stress tests designed to see whether banks finally have enough capital to withstand future shocks.
The new definitions do not have to be used for the 2014 EU stress tests, but the ECB has previously said it will use them in the euro zone where it is assessing the largest banks before becoming the bloc’s supervisor in late 2014.
Banks have recently been told that they will not have to submit their first data to the ECB based on the new definitions, and could instead used “simplified definitions”.
The compromise illustrates the uphill battle the ECB will face to get the data it needs from banks on time to conduct such a comprehensive assessment of the euro zone’s banks in a time frame of just under a year.
The simplified definitions had been agreed on for the initial batch of data, but the full definitions will be used when the final data is crunched, a source with knowledge of the matter said.
ECB Executive Board member Yves Mersch, who together with ECB Vice President Vitor Constancio is overlooking the set up of the Single Supervisory Mechanism (SSM) at the ECB, said on Monday some banks will not be able to adapt their internal system in time.
“That’s why a simplified version has been accepted as a minimum standard. After all this goes further than the existing tangle of national instructions and presents a European basis,” Mersch said in the text of a speech.
“The wish for total harmonization and efficiency efforts sometimes reaches its limits in feasibility,” he said.
This means bank will have to comply with the new rules as much as they can.
“There was push back,” said one source with knowledge of the international negotiations between euro zone supervisors.
A spokeswoman of the EBA that set out the harmonized rules said such best efforts were foreseen from the start until the new rules come into effect at the end of 2015.
But some at the ECB had hoped to be able to adopt the new rules in full right away. However, the compromise ensures that the collected data will show at least some degree of harmonization and comparability.
Reporting by Eva Taylor in Frankfurt and Laura Noonan in London; editing by David Evans