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Merlin said overly optimistic asset valuations allowed big banks to pass previous stress tests. "The next round will be crucial in countering the perception that European banks are less safe, less capitalised than US banks", Merlin told an Association for Financial Markets in Europe (AFME) conference.
"We have to do a very serious job on the assets side this time. We need a stress test exercise that bites throughout the EU, that is robust, that is sufficiently transparent that should help bring back confidence and liquidity back to the European banking sector", Merlin said.
Merlin said the new tests were being well managed by the ECB and EBA and only one set of results will be published to minimise market uncertainty. "Two sets of results would be very confusing", he said.
The results are widely expected in mid 2014 but one official with knowledge of the tests said the outcome may not be known until late next year or even early 2015.
The ECB's own balance sheet assessments could take up to a year, the official said. EU policymakers worry that valuations of banks in the region are lower than those of their US peers, making it harder to find private funding to end a reliance on ECB money.