Here’s What’s Happening at Euro Finance Week
Euro Finance Week, a summit of individuals involved in Europe’s banking industry, kicked off amid uncertainty over how Europe’s banks will be restructured in the coming years, Bloomberg reports. The week is nominally a meeting in Frankfurt for bankers and officials to discuss upcoming changes in policy as well as the economic climate of the region. However, this year’s edition is shaping up to be unlike any other.
Bankers have been surprised to find themselves outnumbered at the conference by various types of regulators, according to Bloomberg. With the European Central Bank getting ready to assume its supervisory role of the region’s banks as early as the end of next year, there are more and more officials who are playing an important role in the euro area’s financial sector. It may end up being European officials and politicians, rather than bankers and CEOs, who are the most powerful figures in the industry by the end of the decade.
In the near future for the banks are a series of measures to ensure the health of the eurozone’s financial sector. One of the main components is a series of stress tests, by which banks’ balance sheets will be subject to a number of hypothetical scenarios to see how they perform. Some of these will end in smooth sailing, but others will represent tougher times, hopefully exposing if banks are underprepared to deal with nonperforming loans or drops in the prices of real estate or bonds. Another phase of the measures will be an asset quality review, by which risk assessments of banks’ assets will be checked and verified.
The European Securities and Markets Agency, one of the top regulatory bodies in the eurozone, said that many financial institutions are providing insufficient information as to the assets on their balance sheets, Bloomberg reports. Among the procedures criticized by the agencies are not disclosing renegotiation procedures on loans and a failure to properly report how sovereign debt is classified.
The sovereign debt question may turn out to be more contentious than originally believed. While the European Central Bank would like everyone to believe that there is no risk associated with government debt, past crises and present interest rates show that this is clearly not the case. Either the bank has to undermine the credibility of the euro area’s governments or it has to undermine the credibility of its review procedures by allowing sovereign debt to be counted as a risk-free asset. This puts the bank in a difficult spot regardless of what choice it makes, Reuters says. In addition, many banks currently classify sovereign debt differently, compounding the problem.
Andrea Enria, the chairman of the European Banking Authority, said to Reuters that part of the core issue is that there are too many banks still open across Europe, partially due to the bailout programs. “I am convinced that too few banks in Europe have been wound down and disappeared from the market so far,” he said. Enria went on to note that only about 40 banks have been closed in Europe since the crisis, while the corresponding number in the United States is approximately 500, according to the news service.