Courtesy of Mish.
Under ECB stress test rules, bank asset sales must be booked (not just expected to close) to count.
Numerous EU banks had asset sales pending but the ECB ignored its own rules in just one case: Deutsche Bank.
Special Favors
The Financial Times reports Deutsche Bank Received Special Treatment in EU Stress Tests.
Germany’s biggest lender, which has seen its share price fall as much as 22 per cent in recent weeks on fears that it could face a US fine of up to $14bn, has been using the results of the July stress tests as evidence of its healthy finances.
But the Financial Times has learnt that Deutsche’s result was boosted by a special concession agreed by its supervisor, the European Central Bank.
Deutsche’s results included the $4bn proceeds from selling its stake in Chinese lender Hua Xia even though the deal had not been done by the end of 2015, the official cut-off point for transactions to be included.
The Hua Xia sale was agreed in December 2015. It has still not been completed and now faces a delay after missing a regulatory deadline last month, though the bank is still confident of completion this year.
Bank of England Complains About Special Favors
Also consider Bank of England Official Hits Out at Deutsche Stress Test.
A Bank of England official has slammed European counterparts for giving Deutsche Bank special treatment during recent stress tests, alleging it could undermine financial stability.
In his maiden hearing in front of the UK’s powerful Treasury select committee on Tuesday, Anil Kashyap said that even though a mooted $14bn fine from US authorities was looming over Deutsche, the biggest problem European lenders generally faced was that they were suffering from poor growth and that they were “badly capitalised, by all standards”.
“That’s just terrible for undermining stability,” said Mr Kashyap, a professor of economics and finance at the University of Chicago Booth, who has just been appointed as an independent member of the BoE’s Financial Policy Committee. “[European banks] are thinly capitalised, for sure. But having a stress test where the rules say: ‘you are not going to do this’ and then giving them a pass is not the way to deal with it.”
The debate over Deutsche’s treatment comes amid rising tensions between policymakers and regulators around the world about banking resilience, and questions over whether European authorities are giving their lenders an easier ride.
The EU’s financial regulation chief, Valdis Dombrovskis, said last week that the EU stood ready to reject new global reforms that aim to curb banks’ gaming of existing rules. He argues that the reforms unduly penalise European lenders.
Deutsche Bank Deleveraging Progress
