New banking stress tests come under fire

Click to follow
The Independent Online

Europe's regulators were still haggling over the details of new banking stress tests yesterday as the published terms showed up some major holes.

The list of banks to be tested has not been finalised and there is a limited test for problems with government debt on banks' balance sheets.

European governments do not want to be drawn into even contemplating a sovereign default.

The European Banking Authority is running the tests to try to restore credibility to the banking system, and are under pressure to make the tests credible after last year's failed to pick up problems at Ireland's banks soon before they were bailed out.

Simon Gleeson, a partner at the law firm Clifford Chance, questioned why the tests were going easy on sovereign debt tests before new capital rules will force banks to hold more of their governments' bonds by 2013.

"The tests are a good thing, not a bad thing, but you have to question the methodology," he said.

"They are hoping the [sovereign debt] problems will be over in two years. Keep your fingers crossed and hope isn't ideal for any stress test," he said.

The EBA said it would be tougher than last year on capital requirements, but had not yet decided what financial instruments to allow in the definition.

Country regulators are battling to make sure the securities on their banks' books count in the calculation. Germany in particular is trying to ensure that financial instruments peculiar to its lenders are included.

James Babicz, the head of risk at the consultancy firm SAS UK, said: "Only when we know more about which banks will be involved and a fixed definition of capital tiering and ratios is made available will we be able to assess the impact this next round of tests will have on banks."

The tests will be run from March to June, when the EBA will publish the results bank by bank. The regulators hope that by giving strong banks the all-clear and making banks that fall short strengthen their capital buffers, investors will be more willing to fund banks in the market.

Diana Ouamar, a risk consultant at Rule Financial, said the decision to go public with the results of the tests was a mistake. "Disclosing information to the markets as we witnessed last July would not serve any real purpose."

She said instead of being tested publicly by the EBA, banks should be made to disclose their risk positions every six months for investors to make judgements.

Santander boss paid £1.46m for year he jumped ship

Santander said goodbye to its former UK boss with £1.46m in pay for his work at the Spanish bank before he jumped ship for Lloyds Banking Group.

Antonio Horta-Osorio earned £797,000 in salary and £665,000 in unidentified "other benefits" for the 11 months to 1 December, Santander UK said in its first annual report.

Mr Horta-Osorio got no bonus last year, taking his earnings well below the £3.4m he was paid in 2009 when his bonus was £2.59m.

The retail banking head, Alison Brittain, was paid £1.18m. Her business has grown fast, but has been bombarded by customer complaints. Under new disclosure rules, the bank said the top-paid non-board executive earned £1.26m, with the next four paid between £768,000 and £991,000.

Terry Burns, the former civil service mandarin who joined as chairman with Santander's acquisition of Abbey National, was paid £520,000.

Santander said it paid £15.4m for the Government's tax on bank bonuses of over £25,000.

Mr Horta-Osorio started work at Lloyds at the start of this month after leading Santander through the crisis.

Comments