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Time to give banks a say in their own health check: ECB's Enria

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FRANKFURT (Reuters) – Banks should be allowed to have a say on the state of their own health when they undergo regular checks by their watchdogs, the European Central Bank’s top supervisor Andrea Enria said on Thursday.

Enria said the “bank view” would feature alongside that of the supervisor, which in turn should be simplified to make it less burdensome.

His view marked a change of tone after a decade in which supervisors sought to draw a line under the financial crisis and establish themselves as credible watchdogs of a sector that had cost taxpayers worldwide hundreds of billions of dollars.

“Why not split the microprudential stress test into a bank view and a supervisory view?,” Enria told a conference at the ECB. “There would be no quality assurance, but banks would have to explain where and why they deviate from the constraints.”

Stress tests in the European Union are designed by the European Banking Authority, which was chaired by Enria until last year, and conducted by local supervisors – such as the ECB for the euro zone.

Enria said some methodology used in stress tests could be changed to make scenarios more realistic, including relaxing the “static balance sheet assumption” that excludes the likelihood banks would adjust their balance sheets in the face of adverse economic conditions.

“Likewise, the exercise could be streamlined and thus become less resource-intensive.”

(Editing by Peter Graff)

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