IMF stress tests come early for UK, German banks
The International Monetary Fund (IMF) will launch the first of its mandatory health checks on big banks this week under a beefed-up inspection scheme to prevent another global crisis.
January 20, 2011 / 09:00 IST
The International Monetary Fund (IMF) will launch the first of its mandatory health checks on big banks this week under a beefed-up inspection scheme to prevent another global crisis.
The probes will start in Britain, three sources told Reuters, to be followed by IMF tests of banks in Sweden, the Netherlands, Germany and Luxembourg ahead of wider tests by the European Union to assess the health of lenders.The IMF moves come as a rating agency study found that more than 30 of the world's top banks have insufficient capital to withstand a big problem, including Credit Suisse, Bank of America and Mizuho Financial. Standard & Poor's said most banks had improved their capital adequacy in the past two years but many still still fell short and the risk-adjusted capital (RAC) positions of banks was "generally a rating weakness".The European Union has come under pressure after finding only a small capital shortfall among banks last year, just before spiralling problems at banks forced an international bail-out of the Irish government.The IMF's Financial Sector Assessment Programs, or FSAPs, are in-depth analyses of a country's financial sector and were made mandatory in September for 25 "systemically important" countries, in a move to forestall another global crisis.The test of Britain's top banks, including HSBC, Barclays and Lloyds Banking Group, is expected to take several weeks, the sources said.The tests in all five countries will be conducted in the first quarter of this year, the IMF spokesman said.The European Banking Authority will separately test the financial sector in a tougher repeat of last year's health check. Some 90 banks are expected to take part and the results are due to be unveiled around July. The heads of Italy's two biggest banks, UniCredit SpA Chief Executive Federico Ghizzoni and Intesa Sanpaolo SpA CEO Corrado Passera, welcomed a new focus on liquidity in these new tests by Brussels."They definitely will be on capital and on liquidity. They are two very important components, even though for me liquidity is almost more important than capital," Ghizzoni told reporters on the margins of a meeting in Rome.In its study, S&P found that the average RAC ratio for the banks was 8% at the end of June 2010, up from 6.7% a year earlier, S&P said.Germany's Commerzbank, Austria's Raiffeisen and Japan's Mizuho Financial ranked near the bottom of the study, each with RAC ratios of under 5 percent.Also faring badly were Credit Suisse and the Canadian Imperial Bank of Commerce -- both at 5.8%. Deutsche Bank, Lloyds, Bank of America and Citigroup all had RAC ratios of below 7.5%.State-owned Bank of China came out top of the study with a RAC ratio of 13.4%.Banks in Japan and Austria had the lowest average ratios, while lenders in Australia, Singapore, Hong Kong and the Nordic countries had the highest. Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
