CEBS defends "consistent" EU stress test process

The body that conducted a stress test of Europe's banks in July defended the process as providing a consistent and meaningful assessment of sovereign debt exposures, after criticism of the process.

"Individual disclosures of sovereign exposures were an essential component of the exercise and a great enhancement in terms of transparency," the Committee of European Banking Supervisors (CEBS) said in a statement on Wednesday.

Tuesday's Wall Street Journal said some major lenders had understated holdings in potentially risky government debt during the stress tests, rattling investors and hurting European stocks and the euro.

CEBS said it worked with national authorities to harmonize the reporting and provide a meaningful and consistent view of banks' exposures to sovereign debt.

"The 'gross exposures' disclosed were on-balance sheet exposures net of impairments but gross of collateral and hedging. In order to provide a meaningful picture of the economic risk borne in the trading book, banks were allowed to deduct offsetting short positions when reporting gross exposures," it said.

Seven European banks failed the health check, which was criticized for being too soft but welcomed for increasing transparency in the sector.

[Source: Reuters, London, 08Sep10]

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