European bank regulators will seek to safeguard the credibility of health checks on top banks by showing how the tests are done, to allay investors' fears of political meddling.
The Committee of European Bank Supervisors (CEBS) will on Wednesday outline the methodology of 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 move, agreed last week, comes as speculation mounts that national authorities and bankers are massaging the test design to make sure their systems fare well, potentially undermining the regulators' goal to boost confidence in the banks.
In a sign of political influence, three sources said that CEBS may not publish a list of the participating banks because it was still not finally decided which German banks would take part.
The CEBS (Committee of European Bank Supervisors) wants to explain the methodology, one source involved in regulators' discussion about the stress tests said. This source said CEBS had also planned to say which banks participated in the tests.
The banks got the stress templates on Tuesday and will have to deliver their answers by July 15, another source said.
The results of the stress tests, including data for all individual banks, are due to be published on July 23. It will include around 100 banks in the euro zone and Great Britain, Sweden and Denmark, sources have said.
Market demand for more disclosure conflicts with regulators' and banks' concern that their transparency may be misread and could heighten skepticism about the health of Europe's banking sector which has knocked 15 percent off the Stoxx European banks index this year so far.
The European Central Bank (ECB) and the European Commission, the EU's executive body, are pushing governments to take a leap of faith, arguing the test will not convince investors if it is too easy.
If every bank passes the test, the stress wasn't sufficient, the markets will say, said one senior banker who like the other sources for this story required anonymity. Therefore some banks won't pass the test.
Bank of France Governor Christian Noyer and Sweden's financial watchdog joined peers from Germany, Spain and Austria on Tuesday in saying that everything was fine with their country's banks in the stress test.
(Testing) is not finished yet, but there's no reason to believe that the result of the French banks will be different from regular tests that we do and which they passed with success, he told reporters on the sidelines of a conference.
Sweden's banks, which raised equity last year to deal with ballooning loan losses in the crisis-hit Baltics, were now capitalized well enough to fare strongly, said Lars Frisell, head of Sweden's banking watchdog.
Most analysts agree that concerns are limited over large, listed, cross-border banks but that the focus will be on smaller, unlisted public-sector lenders, particularly Germany's landesbanks and Spain's cajas.
The stress test includes scenarios on possible writedowns of euro zone sovereign bond holdings, a politically loaded issue because those assumptions run counter to European policymakers' stance that neither Greece nor others will default.
While no stress will be applied to German bunds, the stress on sovereign bonds of the southern European countries will be substantial, a source close to the matter said.
CEBS may also partly skirt the issue by releasing just the amount of sovereign bond holdings on a bank's books, allowing investors to make their own assumptions, two of the sources said. Many banks have so far declined to disclose their holdings of debt in peripheral euro zone countries. This is one of the contentious issues that may not be finally resolved by the statement expected on Wednesday.
Discussions with German authorities are also still not concluded about the exact number of German banks that will take part in the test.
We might see NRW bank dropping off the list, a source close to the matter said, adding this would leave Germany with 15 banks taking part.
(Additional reporting by Boris Groendahl in Vienna, Arno Schuetze in Frankfurt, Lionel Laurent and Marcel Michelson in Paris, Mia Shanley in Stockholm and Huw Jones in London; Editing by Susan Fenton and Erica Billingham)