Bank regulators pushed back at a press report that roiled financial markets Tuesday.
The Committee of European Bank Supervisors, the group that conducted and publicized the stress tests on 91 big European banks in July, issued a statement Wednesday defending its handling of data on banks’ exposure to sovereign debt issued by stressed governments.
CEBS said the tests sought to provide “a meaningful and consistent view of banks exposures to sovereign debt.” The group also explained the guidance it offered bankers on compiling their so-called gross and net exposures to various countries.
“Individual disclosures of sovereign exposures were an essential component of the exercise and a great enhancement in terms of transparency,” the bank supervisors said.
The statement amounts to an answer to an article published Tuesday in the Wall Street Journal. That report contended that “some banks didn’t provide as comprehensive a picture of their government-debt holdings as regulators claimed. Some banks excluded certain bonds, and many reduced the sums to account for ‘short’ positions they held — facts that neither regulators nor most banks disclosed when the test results were published in late July.”
The stress tests have been drawing criticism ever since they were devised, focusing on regulators’ decision not to test how banks would hold up in the event of a sovereign debt default. But the Journal report seems have to struck a nerve, perhaps because it came out at a time when European debt markets have been under renewed stress.
Bank stocks tumbled Tuesday amid reports that bank exposure to weak sovereigns was rising and that regulators might force them to raise more capital, among other things.
The Journal report added to the unrest by noting discrepancies between banks’ sovereign debt disclosures and the numbers compiled by the Bank for International Settlements.
In general, the BIS numbers typically painted a more sobering picture of the losses banks might take should European economies continue to struggle — adding to the sense that the stress tests didn’t truly expose the extent of Europe’s banking rot.
But the European regulators shrugged off those comparisons Wednesday, contending the numbers are like apples and oranges.
CEBS notes that comparison with other sources should be treated with caution as a result of different reporting dates and reporting methodologies. For instance, data provided by the Bank for International Settlements (BIS) is aggregated in a way which makes comparison with the data disclosed by banks during the CEBS exercise impossible.
Of course, CEBS didn’t explain what the conflict between the BIS data and the bank data is. Such is life when bureaucracy meets transparency.
