European regulators were debating how much detail to reveal about health checks of the region's banks on Wednesday, in a fight that may threaten to undermine the purpose of the exercise.
The Committee of European Bank Supervisors (CEBS) was due to outline its methodology for a stress test that simulates the impact of a severe economic shock on about 100 banks in the euro zone and other countries, sources close to the process said.
The unusual move to disclose the test's design ahead of the results would mimic the procedure of last year's U.S. stress test, which was widely credited with reviving trust in banks.
However, sources close to the process said it was still unclear whether CEBS would publish a comprehensive and detailed list of the methodology and of the banks participating, as countries including Germany and France resisted full disclosure.
Transparency is even more important than the scenario that is applied, said Carlos Egea, a credit strategist at Morgan Stanley. The end result needs to be that the market really understands how much risk the banking system is carrying.
What investors want now is to see the numbers, the sensitivities, how the risk assets are marked and what would make them go up and down in value, he said.
EU policymakers decided last month to break with tradition and publish the stress test results bank-by-bank and for a much bigger group of lenders than planned, hoping they can reproduce the effect the U.S. tests had.
Markets are so far unconvinced the tests, whose results are due to be published on July 23, will live up to the U.S. example, which was seen to provide clarity about the banks' doubtful assets and a strict regime for how to handle problems.
SPAIN PUSHING, GERMANY PUSHING BACK
Doubts about the stress tests emerged because a flurry of leaks about what the tests would and would not do showed division between proponents of transparency and guardians of secrecy in both the banks' and regulators' camp.
The push for the publication of the stress test results was coming mainly from the Bank of Spain, which said it wanted to use the test to show its banking system was broadly stable and any shortfalls could be addressed.
Germany in particular, though it agreed to the tests in principle, pushed back on several counts, sources close to the process have said, including with the suggestion that the publication should only say which banks passed and which failed, without further detail.
If CEBS provides the test's economic assumptions and says which details it will publish for every bank, the jury will be out to say if this is enough. If it decides to describe its plans in very general terms or does not give a full list of the banks taking part, investors may take this as a bad omen.
The CEBS was not available for comment.
German banking sources said the scenario assumed writedowns of double-digit percentages for some bonds from the euro zone periphery and growth assumptions that are 1 to 2 percentage points below forecasts for eurozone countries.
The test is expected to cover banks in the 16-nation euro currency area as well as Britain, Sweden and Denmark. Banks tested include BNP Paribas, HSBC, Deutsche Bank, Santander and UniCredit, but also regional German landesbanks and Spanish cajas.
Top officials in France, Sweden, Germany, Spain, Austria and Britain have said they expect their domestic banks to do well in the tests. Dutch Finance Minister Jan Kees de Jager said on Wednesday he was also confident. (Additional reporting by Philipp Halstrick, Arno Schuetze and Alexander Huebner in Frankfurt, Boris Groendahl in Vienna and Mia Shanley in Stockholm, writing by Boris Groendahl, Editing by David Holmes, Sharon Lindores)