Tuesday, September 6, 2011

BNP Paribas Chairman Michel Pebereau sees need for "utter transparency"

The Wall Street Journal carried an article on BNP Paribas Chairman Michel Pebereau discussing the adequacy of European bank capitalization.

After trying to defend capital adequacy citing the recent stress tests, the Chairman then acknowledge that "utter transparency" is needed.

Here is a leading banker confirming the importance of the current asset and liability-level disclosure (it does not get more 'utter transparent' than that) your humble blogger has been calling for.

Recent stress tests carried out in Europe show most European banks have enough capital and don't need more to get through the current crisis, BNP Paribas Chairman Michel Pebereau said Monday. 
Stress tests carried out at the European level at the end of July "don't obviously show that the European banking system as a whole needs more capital," Pebereau told a conference organized by Paris-based think-tank Institut Montaigne. 
Most of the banks scrutinized by the new European banking regulator passed these tests, with only eight out of a total of 90 failing. 
Like the stress tests conducted a year earlier, these tests have been subject to an intense amount of criticism by the investment community.  Clearly, based on their actions of reducing their funding to European banks, US money market mutual funds do not find the tests and their results compelling.
Pebereau's comments follow a call from International Monetary Fund chief and former French finance minister Christine Lagarde for banks to bolster their capital buffers in the face of the sovereign-debt crisis in the euro zone. 
Her comments raised eyebrows among European banking officials, who pointed out Lagarde also said most global banks have already undergone a round of recapitalization after the 2008 crisis....
An insolvent bank can raise capital and still not be solvent.
Europe-wide stress tests have been criticized for not factoring in the possibility of default of a euro-zone member. But Pebereau countered that stress tests give a comprehensive picture of European banks' exposure to sovereign-debt risk and how that risk is provisioned. 
Even as he recognized that "utter transparency" and more oversight on banks is needed, Pebereau repeated his opposition to measures he says could hinder bank lending to the economy, such as the capital surcharge on systemic banks proposed by the Financial Stability Board, the body advising the Group of 20 industrialized and emerging nations on financial reform. 
Instead, Pebereau said, systemic banks should be subjected to tighter supervision.
Ultimately, with "utter transparency" banks receive much tighter supervision because they become subject to market discipline.

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