Stress tests standoff resolved

Patrick Honohan: No timing decision on stress tests.

A standoff with lenders over the timing of stress tests of the bailed-out banks that threatened to cloud the exit from the EU-IMF rescue deal at the end of the year has been resolved, sources close to the matter have said.

The Government has agreed the tests — aimed at gauging banks’ resilience to economic shocks — could take place ahead of a Europe-wide exercise, in line with the EU and IMF’s desire for the banks to be checked before the end of the bailout deal in December.

The Government had wanted the tests carried out in conjunction with a European-wide exercise, expected in early 2014.

"The situation has been defused," one of the sources told Reuters.

The banks have not been stress-tested since 2011 when consultants Blackrock identified a €24bn capital hole. Poor results from a new set of tests could result in the Government having to funnel more capital into state-backed lenders, on top of €64bn already poured in, potentially complicating the country’s ability to fund itself from international bond markets.

The deal paves the way for the tests to be run in late 2013, though the exact timing is unclear since it depends on the date of the European exercise, which has not yet been set.

Finance Minister Michael Noonan hinted at the compromise speaking to Reuters in Switzerland on Thursday, where he said the tests would be "in close proximity to" the European ones, a softening of his previous stance.

The tests will use the same macroeconomic assumptions that are employed in the European tests.

The European Commission declined to comment, as did the ECB, the Department of Finance, and the Central Bank. The IMF could not be reached for comment.

Central Bank governor Patrick Honohan said this week the banks would need more capital before 2019, when tougher international rules on the sort of capital banks can use come into effect. He did not quantify the amount that would be required.

He said no decision had been made on the timing of stress tests but he expected to oversee them in the latter part of this year.

The head of AIB, David Duffy, has argued the case for 2014 stress tests, saying the bank would have a clearer picture on problem mortgages next year.

— Reuters