The EU Plans Another Round of Bank Stress Tests Vowing to Cleanup Toxic Assets

“BRUSSELS—Europe is embarking on a new attempt to pull its banks out of the molasses of its debt crisis, hoping an aggressive cleanup of toxic assets will get banks to lend again and kick-start its flailing economies.

The push is being led by several key officials in Brussels and Frankfurt, who want to see a new round of much-tougher stress tests before the European Central Bank becomes the euro zone’s main banking policeman next year, according to four European officials familiar the talks.

They are backed by the continent’s richer countries, including Germany, the Netherlands and Finland, which don’t want to pick up the bill for weak lenders in their poorer neighbors.

The proponents of strict stress tests will launch their campaign at a meeting of European Union finance ministers in Dublin on Friday. That debate follows a first discussion of the exercise among senior national finance-ministry officials last week.

Efforts to rid banks of bad assets and then boost their capital buffers face formidable challenges: Previous stress tests have been watered down as national governments lacked the willingness and financial capacity to deal with the results. Even now, officials caution that key players—including the ECB and the European Commission, the EU’s executive—haven’t made up their minds on how intrusive they want the new stress tests to be.

But a group of key crisis managers believes cleaning up weak banks is the only way to get Europe’s economy to grow again, after superlow interest rates and large-scale liquidity injections from the ECB have failed to produce the desired results. These officials see continued doubts over the health of many lenders as the main reason banks are reluctant to lend to companies, especially in the continent’s weaker countries…..”

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