In an effort to secure the health of lenders in five European countries, a team from the International Monetary Fund (IMF) will seek a detailed report this week from Britain’s biggest banks.
The IMF is checking the loss shock absorbing capacity of European banks before a similar test by the European Union is taken up on a wider scale.
In a late Tuesday communiqué, IMF said it is conducting what it termed as ‘routine’ stress tests in the UK, Germany, Sweden, Luxembourg and the Netherlands.
The European Union had conducted a similar test last year and had only found a small shortfall in capital among banks. However, in reality several banks in European countries were on the verge of failing with the Irish government forced to seek an international bailout package to support the country’s bleeding banking system. Following the incidents, the credibility of EU’s test has come under a cloud.
On September 25, the IMF’s Financial Sector Assessment Programs or FSAPs were made compulsory for 25 ‘systemically important’ countries to avoid a repetition of the banking crisis.
The IMF describes its FSAP programme “a comprehensive and in-depth analysis of a country’s financial sector”.
The stress test of top British banks will take weeks and that of the five countries will be completed by the first quarter, the IMF spokesman said.
The European Banking Authority will follow a similar test covering 90 banks, results of which are expected by July.
The test is conducted in Sweden after a decade although IMF claimed that tests are conducted after every five years. IMF is expected to publish its findings in summer.