The head of the Germany’s financial market watchdog Bafin said that banks of the country may face a capital shortfall in stress tests on the sector over the coming months.
“Depending on how the scenarios and assumptions are set up, the (stress) test could unearth additional capital needs at some banks,” the financial regulator’s President Elke Koenig said in the text of a speech. Koenig added she was however confident that the European Central Bank’s asset quality review that will precede the stress tests held marginal scope for unpleasant surprises.
She also said both assessments of health of banks were critical for allowing an ideal start to the ECB’s takeover of banking supervision in the euro area from November. “Both must be stringent but we have to proceed with a sense of proportion,” she said.
Regulators needed to change the preferential treatment given to government bonds as per Koenig and said this trend was encouraging banks to invest in them and strengthening the inter-twining of banks and sovereigns. “Market transparency and market control are only possible if huge streams of data can be centralized,” she said.
“You therefore have to move as much trading as possible on these markets to transparent, directly or indirectly supervised exchanges,” she said.
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