17 November 2013

EBA chief warns that stress tests may be undermined by flawed decision-making process

Andrea Enria, who chairs the European Banking Authority, said the benefits of crucial bank stress tests to be carried out over the next year could be impaired if decision-making was not streamlined and nationalist tendencies contained. The EBA had to move away from consensus-based governance traditions, he said.

“You need European decision mechanisms rather than having always a committee-type of decision in a crisis", Mr Enria said. “Committees in a crisis don’t work because you have conflicts.”

Mr Enria clearly remains frustrated that the structure of his pan-EU regulator – which depends on an unwieldy committee of representatives from the EU’s 28 Member States – will hamper ongoing efforts to maintain a stable and credible financial sector. His comments, in an interview with the Financial Times (subscription), are likely to be seen as a further slight to Germany, which has stood increasingly aloof from centralised EU power structures.

Challenging the insistence by Germany and some other EU countries that national governments must retain control of the Banking Union agenda, Mr Enria said it was vital that more power was devolved to EU institutions. The process for administering new resolution powers, in particular, was far too bureaucratic, with excessive input from national government representatives, he said.

“We are given 24 hours to do mediation [in a bank resolution] and we are given a governance [structure] which is impossible", Mr Enria said. “They give us responsibilities but they put so many national safeguards on every task we need to do that sometimes I am concerned we will not be able to perform [them].”

Mr Enria stressed that he is not “seeking power” and would be open to another agency taking on the role, provided it is able to take decisions “in the European interest”.

Stress tests

One element of the stress tests will be less extreme than last time round. To Mr Enria’s irritation, EU lawmakers have given national authorities discretion in crucial areas, such as in valuing sovereign bonds – “not a very good choice”, he says.

For all the political delicacy, the EBA is acutely conscious that its previous attempts at stress tests – and those of its predecessor organisation – were widely ridiculed. Immediately after one such attempt, the Irish banking system, which had been given a clean bill of health, collapsed. After another, the Franco-Belgian lender Dexia, also rubber-stamped as financially robust, promptly needed a third rescue.

Mr Enria is cautious about the new test, but he knows his job is clear. “There is a collective willingness to design an exercise which manages to make further progress in restoring [investor] confidence", he says. “We should focus our efforts on doing [a thorough] review, and providing as much transparency and disclosure as possible.”

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In a separate interview with the FAZ, Enria also said that too few European banks had been wound down during the crisis. "Governments tend to keep their national banks in the market and this has slowed down the repair process", he complained. He further criticised the absence of a common European resolution fund for ailing financial institutions. 

© Financial Times