European Union economic leaders said today that they will shortly launch new transparent, uniform stress tests on banks that will aim to check liquidity levels after Ireland's banks needed bailing out.
EU financial services commissioner Michel Barnier said the tests, still being designed by the European Central Bank and the new European Banking Authority which holds its first board meeting in Frankfurt on Thursday, would also assess the risk of exposure to sovereign debt losses.
The tests are set to begin in February or March with results to be published mid-year, an EU official said.
The health checks would be accompanied by remedial action for banks that fail to meet levels of capital or other safety yardsticks, although it was not spelt out how that might be done.
The stringency of tests carried out in July last year was heavily criticised as Bank of Ireland and AIB Banks passed only to need extra funds a few months later. Of 91 European banks tested last July, only seven - five in Spain, one in Germany and one in Greece - were found to be vulnerable.
'We are going to draw the lessons by making the next tests more rigorous and even more credible,' Barnier said at the close of two days of talks between EU finance ministers and permanent officials in Brussels.
The EU has still to work out appropriate methodology suitable for cross-border testing of positions that can change by billions in the space of a second. EU sources also said that in parallel to the EU tests, the International Monetary Fund would conduct a similar exercise in Britain, Sweden and Luxembourg. The bank stress tests are part of the European Union's efforts to win back market confidence in the stability of its financial system and draw a line under the euro zone's sovereign debt crisis.