Highlights: ECB's financial stability chief on bank health tests

Reuters

FRANKFURT (Reuters) - The European Central Bank set out plans on Wednesday to submit the euro zone's top banks to a comprehensive batch of tests next year.

Following are comments from Ignazio Angeloni, director general for financial stability at the ECB, at a news briefing:

BACKSTOPS

"In our case, we have a clear ranking in mind. First of all, the private sector has to intervene.

"We believe that the transparency enhancement exercise that we are making will facilitate that."

"Once markets know more and once risks are priced better, then investors are more ready to come in.

"We cannot rule out the possibility ... that that may not be sufficient immediately.

"That's why the president said there have to be backstops, in order to ensure that the end point of the exercise is safe.

"That's where the public ... of the recapitalization can come in, which is national, first of all. But then at the end there is also a European backstop through the ESM, with different conditions, graduations and modalities."

"The combination of the three elements: the private, the national public support and the European support will be fine-tuned further in the course of political discussions to provide a sufficient safety net."

ON TREATMENT OF SOVEREIGN BONDS IN AQR

"We are not going to invent a new way to account for the (sovereign) bonds."

ON CAPITAL RATIO

"I can confidently say that the stringency is not less than the existing one on average. It does not necessarily apply to individual cases."

SOVEREIGNS

"The sovereigns are in scope, a part of the risk ... I think the breadth of the comprehensive assessment allows to catch this component as well."

PHASE-IN PERIOD IS 2014-2018

"We have a very safe - a feasible but safe - capital cushion of 8 percent but using the definition of the CRD, so allowing for all the transitional provisions that the CRD clearly allows to the banks. (It) allows the banks to phase-in the definition of capital over a period of time, and the period of time is 2014 and 2018."

WHAT MAKES THIS DIFFERENT THIS TIME

"Countless things, let me mention two. This is conducted by an authority that immediately after will become supervisor.

"The EBA was not in the position in 2009 and 2011 to perform an asset quality review before conducting stress tests."

ON CAPITAL DEFINITION

"We had a choice in the definition of capital, whether to be more backward-looking or forward-looking. We decided to be ... forward-looking. We adopt the new definition. The definition is the ratio and the other is the definition of capital. For the ratio, we have decided to be fully loaded, the Basel CRD when it is fully implemented and to that we have added an additional 1 percent ... We have a very safe capital cushion of 8 percent.

"Allowing for all the transitional, allow the banks to phase in the definition of capital.

"In the stress test, it adds the time dimension. Since this is a phase-in process, for the end year has not been decided.

We don't want to attach any specific weight of importance to any of the three elements (of the comprehensive review). Don't expect us to present a specific requirement for the AQR or the stress test."

NO EARLY RESULTS BEFORE TESTS COMPLETED

"There are no partial results for each of the steps communicated maybe at different times. The assessment will consist of the results of the analysis of the banks and the corrective actions, the repair. For some of the banks there may be actions to be taken that may take a different nature. We cannot predict now. It will depend. Some of the assets may need to be sold, the whole variety. That will be part of the judgment that will be formulated at the end. When is the end, the end is obviously October 2014. We are not going to give you final results before we have completed."

"We do intend to maintain, during the course of the 12 months, a constant dialogue with you. It will be on the modalities ... but not on the final results."

ON ASSETS THE ECB WILL LOOK AT

"We're going to be very, very broad based."

RISK-BASED EXERCISE

"We want the exercise to encompass all the sources of risk. We don't want this to be a partial exercise. That's why we talk about a risk-based exercise."

IMPORTANT STEP FOR EUROPE

"This is a very important exercise, it is a very, very important step in the preparation. It is an important step for Europe."

(Writing by Paul Carrel and Eva Taylor; Editing by Susan Fenton)

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