Europe listed 91 banks taking part in financial stress tests -- including many regional banks where markets suspect most of the sore spots are -- as it seeks to restore confidence in the sector.
Providing some, but not nearly all, details of so-called stress tests that markets have been clamoring for weeks, a regulatory committee said it would test how banks held up if the economy and financial markets deteriorated.
The exercise is being conducted on a bank-by-bank basis using commonly agreed macro-economic scenarios, the Committee of European Banking Supervisors (CEBS) said.
(It) also envisages adverse conditions in financial markets and a shock on interest rates to capture an increase in risk premia, in bond markets, said London-based CEBS.
The scenarios would show a different impact on the various European Union member states, said CEBS, a little-known group of European Union national finance regulators.
The banks -- ranging from Germany's Deutsche Bank to Malta's Bank of Valletta -- comprised 65 percent of the European banking sector, the group said.
Most of Europe's large banks that operate in more than one country were on the list, which also showed many German and Spanish regional banks, the so-called landesbanks and cajas respectively, thought to be among the weakest.
But there was less detail than many in markets might have hoped for in the document, which listed two basic assumptions. One was that the adverse scenario would assume economic growth 3 percent below official Brussels forecasts.
The shock to government bonds would assume a deterioration of market conditions similar to the situation observed in early May 2010. Europe's bond markets have been plagued by the fear of a government defaulting.
What is lacking here is information on detailed assumptions, like exactly what unemployment rates, what GDP downgrades they are doing on a country-by-country basis, said a London-based banking analyst, asking not to be named.
I guess we'll get that later. But that might disappoint the market, the analyst said.
Results of the tests will be disclosed on July 23.
The list covers banks such as BNP Paribas, HSBC, Deutsche Bank, Santander, UniCredit and ING.
GERMANY VS SPAIN
In an ironic twist, CEBS published its document just before Germany started battling Spain in the semi-finals of the World Cup football tournament in South Africa, after markets had been waiting for the news for most of the day in vain.
Germany had been critical of the way the tests will be conducted and of how much detail would be published, sources had told Reuters in recent weeks, while Spain's cajas regional banks were seen as ranking among the weakest.
The last-minute haggling between 19 countries involved in the test over whether and how to make the test's design available, highlights fractious European Union decision-making.
The unusual move to disclose the 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.
But many details -- such as what markdowns regulators will assume on government bonds as a consequence of their adverse scenarios -- were not in the document.
Whether to apply a markdown on the value of debt in countries including Greece, Portugal and Spain is one of the key issues facing European regulators keen to show the tests are stringent and realistic.
There is a confidence deficit in the ability of the Europeans to execute these complex financial stability exercises, said Carlos Egea at Morgan Stanley.
Two German banking sources said a markdown of 16 to 17 percent off the market price would be applied to Greek debt. [ID:nWEA8808] Greece's 10-year bonds are trading at about 75 percent of their par value at present.
No markdown would be applied to German sovereign bonds, the sources said, and a 0.7 percent markdown would be applied to French sovereign bonds, one of the sources said.
Government bonds of Portugal, Spain, Italy and Ireland would see more significant markdowns, the sources said.
Wire service Bloomberg reported that a 3 percent loss would be applied to Spanish bonds.
Markets are so far unconvinced the tests 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.
Bankers involved in the stress tests said questionnaires with detailed economic assumptions were sent out on Monday and had to be returned by July 15 to national regulators, which would review and may revise the banks' own assessments.
Providing more detail about problematic assets, including bonds issued by peripheral euro zone countries and loan exposures to troubled pockets such as Spanish real estate or small and medium companies, was one of the main hopes investors have for the tests.
Doubts about European banks' ability to clean up their balance sheets have limited their ability to raise funding and made them highly dependent on the massive liquidity taps the ECB opened after Lehman Brothers' collapse in 2008.
The initial push for the publication of stress test results came from the Bank of Spain which said it wanted to show its banking system was stable and any shortfalls could be addressed.
Germany in particular pushed back on several counts, sources close to the process have said, including the suggestion that the publication should only say which banks passed and which failed, without further detail.
(Additional reporting by Alexander Huebner, Angelika Gruber and Philipp Halstrick in Frankfurt, Boris Groendahl in Vienna, Steve Slater and Huw Jones in London, Mia Shanley in Stockholm and Julien Toyer in Brussels, additional writing by Boris Groendahl; Editing by David Cowell, Erica Billingham and Bernard Orr)