European banks may be stress-tested: Canadian minister
(OTTAWA) - Group of Eight industrialized nations will encourage holding "stress-tests" of European banks modeled on the US example at upcoming talks, Canada's Finance Minister Jim Flaherty said Tuesday.
"There already has been some discussions on encouraging stress-testing, not only on the American banks, but on the European banks where it has not necessarily occurred," Flaherty told a press conference.
"We'll have further discussions on the functioning of financial markets" at the next G8 finance ministers meeting in Lecce, Italy, on June 12-13, he said.
Flaherty was responding to an earlier report that said US President Barack Obama's administration wants European banks put through more rigorous public stress tests to ensure the institutions' survival if economic woes worsen.
Treasury Secretary Timothy Geithner was likely to discuss the issue during closed-door meetings at the G8 finance ministers' summit, said the Wall Street Journal.
On Monday, the International Monetary Fund warned an economic recovery could be slow if banks do not speed up a "cleansing" of bad investments and lay bare their toxic assets, in order to restore confidence and get credit flowing.
IMF director Dominique Strauss-Kahn said in a speech in Montreal the banking sector represented "probably the biggest downside risk for a 2010 recovery."
"You'll never recover until the cleansing (of banks) has been completed," he said.
European officials may argue, however, that publicizing individual banks' weaknesses could increase the risk that they will fail.
World Bank president Robert Zoellick, in Ottawa for talks with officials, said that a recovery would depend not only on the G8, but also on "major developing countries" such as China, India and Brazil.
He also urged all nations to avoid protectionist policies. "In a downturn like this, any steps that limit trade and growth and opportunity can be particularly dangerous," he said.
"The danger in this environment is you get tit-for-tat retaliations and it serves nobody's interest," he said.
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