THE EU will announce the methodology for its planned banking stress tests in early March, commissioner for the internal market Michel Barnier said yesterday.

“The methodology will be presented to you on March 2nd. That’s the sort of timetable we are working on,” Mr Barnier told a news conference.

Officials from his office said while March 2nd was the scheduled date, banking supervisors are expected to meet on March 2nd and 3rd, and suggested that the methodology may only be released after that meeting.

The EU plans to test the banks in the first half of this year and recapitalise those that turn out to be weak, a move to boost market confidence in the EU financial sector and draw a line under the sovereign debt crisis.

Last July, 91 EU banks were tested to assess how they would cope if lending – such as residential or commercial property loans – turned sour.

But the studies did not consider the risk of a bank being forced out of business if it struggled to get credit itself, or if savers withdrew deposits.

Both factors exacerbated the difficulties of Irish banks.

Supervisors are now in talks over how to make this year’s stress tests tougher.

However, there is disagreement over whether to include falls in sovereign debt prices.

The most contentious point is whether a possible future restructuring or default on debt by, for example, Ireland or Greece, should be one of the test scenarios for banks.

Many fear that if such a scenario is included, it might send a signal to investors that a restructuring is imminent and undermine confidence.

Another controversial issue is whether banks should be tested for their ability to deal with a liquidity crunch, in the event of borrowing difficulties caused by a market squeeze. – (Reuters)