The European Central Bank is sizing up just how tough it wants to get with the region’s lenders.
Policy makers at the Frankfurt-based ECB will this week try to agree on the ground rules of its three-pronged probe into the health of the 130 banks it will start supervising next year. The process will stress-test balance sheets for exposure to sovereign debt as well as push institutions to admit to more of their bad debt than they have before, according to three officials who spoke on condition of anonymity.
The check-up due in early 2014 is the ECB’s precondition for assuming the burden of overseeing banks from Deutsche Bank AG to Intesa Sanpaolo SpA (ISP), and the first assessment of the industry since a round of stress tests two years ago. Already in charge of setting monetary policy, ECB President Mario Draghi is putting the institution’s reputation on the line as it balances rigor with caution in examining the euro-area’s fragile financial system and tries to prevent a repeat of the turmoil that set off Europe’s worst recession since World War II.
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