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ECB sees more stress tests in bank supervision

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The European Central Bank plans to use further stress tests as part of its effort to ward off any future banking crises in the euro area, a high level ECB official said on Monday.

[FRANKFURT] The European Central Bank plans to use further stress tests as part of its effort to ward off any future banking crises in the euro area, a high level ECB official said on Monday.

The ECB directly supervises the bloc's 123 largest lenders, while smaller banks remain under the purview of national supervisors.

It put lenders through hypothetical stress scenarios last year as part of a comprehensive assessment of banks' financial health before taking overall responsibility for banking supervision in the euro zone in November. "The stress testing will be part of the supervisory activities in the future, for sure, in some form or another,"Jukka Vesala, an ECB Director General responsible for micro-prudential supervision, told a banking conference.

The ECB is taking a close look at the viability of big banks' business models and strategy in meetings with top bank executives and risk officers as part of its Supervisory Examination Programme (SEP), which includes on-site inspections and investigations of banks' internal models as well as regular inspection by multi-country supervisory teams, Mr Vesala said.

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The ECB is meeting bank executives "as frequently as possible," Mr Vesala said. "These discussions are formalised under the SEP plan," he added.

A radical plan for Deutsche Bank to become a pure investment bank and corporate lender was dropped after stress tests demanded by the ECB concluded the model would not withstand a severe financial crisis, sources familiar with the discussions told Reuters last week.

Germany's largest lender ultimately opted for a less radical restructuring.

REUTERS

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