ANN CAHILL: ‘No financial nationalism’ in bank stress tests

There will be no “financial nationalism” in the coming bank stress tests to be carried out ahead of the ECB taking over as the single banking supervisor, economics commissioner Olli Rehn has warned.

He also insisted that the ECB was ready to change interest rates or inject more liquidity into the system if the anaemic eurozone economy was to move into deflation.

Asked about the need to recapitalise banks, Mr Rehn said it was of paramount importance that their financial repair is finalised.

This was done in the US in 2008 and 2009 and resulted in a more healthy and resilient banking sector which became the foundation for an early recovery for their economy, he said.

But Europe still had to complete this work and the coming asset quality review was a crucial step in this direction. “The stress test will be much more competent and convincing than the 2010 tests,” he said.

He added that they had been described as suffering from financial nationalism as every national banking supervisor wanted a positive result, as happened in Ireland, Spain and even Germany.

ECB governor Mario Draghi would ensure the current tests will be effective, competent and credible in the run up to the ECB taking over as supervisor and would want to ensure healthy banks in the future, said Mr Rehn.

The commission’s autumn forecast for inflation put it at 1.5% next year and falling slightly to 1.4% in 2015, but Mr Rehn said inflation was still in positive territory.

“The risk of deflation seems remote at the current juncture. The ECB stands ready to act by changing the rates of injecting liquidity in case downward risks to inflation were to materialise,” he said.

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