Italy to give banks a `stress test’

March 18th, 2009 - 1:02 pm ICT by IANS  

Rome, March 18 (Xinhua) Italy will give banks a “stress test” to see if they have enough capital to weather the current economic recession, the Italian central bank governor has said here.
The initiative is aimed to “put a number on how much they expect to lose from bad loans, how many of their clients will not pay their debts and how they plan to balance this in their budgets”, Mario Draghi, the head of Bank of Italy, told parliament.

“Once we have this number, we will ask them: do you have enough cash?” he added.

The governor said the examination period will run until June 2010, when the recession is expected to be over. In making their calculations, banks need to report how much they lost during recession and the amount of debt their clients had at that time.

Referring to the global financial crisis, Draghi said while central banks and the states “were able to keep the financial system from collapsing, insufficient light was shed on the balance sheets of those banks which had invested heavily in what became toxic assets”, or bad loans and investments.

“We still do not know for certain how big the losses were for the world’s leading banks and how these losses were distributed,” Draghi told the lower house finance committee.

The governor also said the Bank of Italy had played the role as the country’s financial watchdog. Since February 2006, the bank had drawn attention to the risks created by the derivatives market and had been more focused “on operators rather than on products”, he added.

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