Concerns over EU bank disclosures



Financial markets are still stressed and this may be exacerbated by the way banks have disclosed assets whose markets have dried up, a top European Union banking supervisor said on Tuesday.

 

"We have seen there is still significant stress in the market," Kerstin af Jochnick, chair of the Committee of European Banking Supervisors, told the European Parliament. CEBS has analysed 20 big cross-border banks in Europe and is concerned by some of its findings, particularly how they value and disclose investments whose markets have dried up due to the credit squeeze.

 

"Our preliminary findings show there are differences in terms of content of disclosure and presentations banks make in statements," Jochnick said.

 

It is difficult for market participants to assess the risk profile of banks, and disclosures seem more aimed at shareholders than the wider market, she said.

 

There is also concern over how banks have been valuing assets that became illiquid as defaults in the US home loan market turned into a global credit squeeze.

 

"Lack of consistency in banks' valuations, uncertainty about their accuracy and inadequate transparency may have contributed to the lack of confidence of market participants and exacerbated the market turbulence," Jochnick said.

 

She said initial lessons learnt from the market turmoil included:

 

  - Improvements are needed to internal governance mechanisms inside banks

 

  - Stress testing in banks needs to be reinforced

 

  - The results of stress testing should be used for contingency planning

 

  - Group-wide approaches to liquidity risk management could be further developed

 

Global market regulators will put forward a list of recommendations on how to deal with the regulatory fallout from the US sub-prime mortgage crisis to leaders of the Group of Seven nations on Friday in Washington. (Reuters)

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