While underscoring its independence, the European Central Bank suggested on Monday it was still flexible enough to accommodate the repeated demand by the International Monetary Fund for a fresh review of the state of the local credit sector, as it emerged Greek banks will undergo their stress tests earlier than their European Union peers are put through theirs next year.
ECB President Mario Draghi told members of the European Parliament on Monday that Frankfurt is willing to show some flexibility on Greece: “What the [Single Supervisory Mechanism] plans to do next year is to have a stress test, possibly frontloading the stress test, and basically the SSM sent a letter to the IMF concerning exactly this expected line of action,” said Draghi.
Bank officials noted that the test process could begin from as early as February so that it can be completed by late May or June, ahead of the completion of the Greek bailout program in August 2018. Reuters reported that the SSM had not yet made a decision.
Frankfurt aims to bring the process forward for the Greek banks so that if any capital shortfall is identified it can be covered through a recapitalization process as part of the ongoing bailout program – leaving that for the usual deadline for stress test results in July would be too late.
The ECB and its supervisory division, the SSM, have repeatedly rejected the IMF’s demand for a new asset quality review (AQR) of the Greek banks given their problems in tackling nonperforming loans. The eurozone’s central bank has made it clear that it will be the one to make such decisions. “The SSM will take its decision with full independence,” Draghi reiterated on Monday.
ECB Executive Board member Benoit Coeure added on Monday that when the exercise does take place the SSM will be particularly cautious in examining the peculiarities of the Greek banks. “The discussion with the IMF is open, so that we make it work in a way that will cover the concerns of the Fund. It is not a question whether an AQR is required or not, the discussion is over how we will proceed to cover the concerns. In the end it is the supervisor that decides – i.e. the SSM,” stated Coeure.