‘ECB can’t ease up on stress tests’

The ECB cannot ease up on bank stress tests this year, otherwise the eurozone risks being lumbered with a zombie banking system and stagnant growth for the foreseeable future, according to a leading banking expert.

Nicolas Veron, who is a senior research fellow at the internationally renowned Washington-based, Peterson Institute for International Economics, says that if the ECB pursues a “rigorous” line with the stress tests in an attempt to purge the banking system of its bad assets and return it to profitability, then there will be a number of flashpoints over the course of 2014.

“Some member states, including the largest, might push for ‘forbearance’ — hiding the bad news — for fear of the political and financial consequences of publicly-led bank restructurings. The ECB has strong incentives to resist them. Its credibility is at stake, not only as a supervisor but more broadly as a European institution, with possible spillovers to its reputation as a monetary policy authority,” said Mr Veron.