By Viktoria Dendrinou And Stephen Fidler
BRUSSELS--The European Union's new financial markets chief said
there is no need for the U.S. to stress-test European banks that
have already received health checks in Europe.
In an interview with The Wall Street Journal ahead of his first
trip to the U.S. in his new role, European financial services
commissioner Jonathan Hill said that banks across the bloc are
"properly and sensibly capitalized" and that stress-testing banks
on both sides of the Atlantic "isn't necessary."
The Wall Street Journal reported last week that two large
European banks, Deutsche Bank AG and Banco Santander SA, are likely
to fail the Federal Reserve's stress test over shortcomings in how
they measure and predict potential losses and risks, citing people
familiar with the matter.
Both Deutsche Bank and Santander passed European Central Bank
stress tests in October. Those tests focused on whether the banks
had enough capital to withstand a two-year recession but didn't
assess issues addressed by the Fed's test, including how the banks
are governed, risk management and other more qualitative
factors.
The Fed started monitoring European banks closely after it was
forced to come to the aid of some major U.S. banks during the 2008
crash. Mr. Hill emphasized that European lenders are in much better
shape now than they were during the crisis, having gone through
rigorous stress tests earlier in the year.
"The stress test and comprehensive assessment process we went
through in the EU actually shows that EU banks are in much [better]
health than before, are strongly capitalized and have emerged from
the crisis in much better state," he said.
During his four months in the role, several banking scandals
have come to light, despite the influx of regulations over the past
few years aimed at curbing risk-taking and preventing illegal
behavior.
Mr. Hill also said he was disappointed to read reports of
allegations that HSBC may have helped clients avoid taxes via its
Swiss unit.
"I don't think it is healthy that the financial-services
industry is seen as being divorced from the rest of the economy and
they've got a kind of pariah status," he said. But, he added,
"there's a reason why that keeps happening."
Mr. Hill said prescriptive regulation has led firms to hire
lawyers, compliance officers and others so as to "wiggle their way
into the cracks of the regulatory system." This can weaken bankers'
sense of responsibility.
"So you get into a downward spiral of...'Have you complied?' and
you don't actually ask yourself what is the right behavior that you
ought to have," he said.
On the other hand, he was skeptical that an approach solely
aimed at changing bankers' values "is going to cut the
mustard."
Mr. Hill inherited a number of disagreements between EU and U.S.
regulators. He indicated that progress has been made to tackle an
impasse between EU and U.S. regulators in their efforts to
coordinate on international rules for derivatives.
He said that he hoped the issue would be resolved ahead of a
deadline in June. At that time, under EU rules, high capital
charges would come into effect for European banks that do business
with U.S. clearinghouses, rules meant to reduce risks in the
financial system by standing between buyers and sellers of
securities and derivatives.
So far, the EU has been unwilling to bless U.S. clearinghouse
regulations as being strict enough to be deemed equivalent to
European rules, as they've done with rules in Japan, Hong Kong,
India and other countries with much smaller clearinghouses.
The deadline has already been pushed forward twice, by six
months each time.
"We've been working closely and I think generally we've been
making some progress. Good progress," Mr. Hill said, adding that
his instinct was to say "let's sort this out" to his team in the EU
and to Commodity Futures Trading Commission Chairman Timothy
Massad.
"I know there will be difficult issues between us and things no
doubt over the years on which we don't agree. But my starting point
is we agree on a hell of a lot and the more we can agree, and not
get bogged down in kind of trench warfare over issues, the better
it will be for financial services industries on both sides of the
Atlantic," he said.
Write to Viktoria Dendrinou at viktoria.dendrinou@wsj.com and
Stephen Fidler at stephen.fidler@wsj.com
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