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ECB bank watchdog says markets favorable for capital raising

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[June 23, 2014] By Padraic Halpin

DUBLIN (Reuters) - There is sufficient liquidity in the market if euro zone banks want to raise more capital as they prepare for pivotal stress tests later this year, the bloc's top regulator said on Monday.

The ECB's Single Supervisory Mechanism (SSM) is preparing to run the rule over almost 130 lenders it will begin supervising from November in stress tests billed as the toughest yet after previous exercises failed to convince markets.

Banks have taken action on capital ahead of the tests and strengthened their balance sheets by 104 billion euros in the nine months to April through, for example, capital hikes or increased provisions, the ECB said at the time.

"The markets are in a reasonably benign situation and there is liquidity ready to be invested in banks, in equity or funding, if the markets are convinced by the transparency exercise that we are undertaking," Daniele Nouy, chair of the Supervisory Board of the ECB, told reporters when asked if the ECB expected banks to carry out more capital raising.

The ECB's review, aimed at encouraging banks to recognize losses on loans or investments that have gone bad so that they can regain investor trust and help the euro zone's fragile recovery, was well on track to achieving its goals, Nouy said.

Speaking at a conference attended by chief executives and senior officials from Ireland's main banks, Nouy said the SSM had received over 14,000 applications for 800 jobs it plans to fill by the end of the summer.

The ECB had said at the end of May that it had received 8,000 applications for SSM jobs, which have a top salary of 245,000 euros a year and enjoy the low tax rates of those working for a supranational authority.


Nouy, formerly a French regulator, said the ECB would publish a guide to the supervisory practices and methodology of the SSM before it takes on the role of supervisor, to ensure transparency.

She added that national supervisors would play a "major role" in this year's assessment and that the ECB would largely rely on them to provide the risk assessment and Supervisory Review and Evaluation Process (SREP) elements as its own systems need further field-testing.

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One of those regulators, Irish Central Bank deputy governor Cyril Roux, said he expected a first submission of an interrogation of loan books as part of the SSM's asset quality review to be made at the end of the month.

Roux, the country's head of regulation, also said that the Central Bank would review its supervisory model for smaller banks, many of whom are based in the Irish Financial Services Centre, Ireland's venue for international finance.

Ireland's local banks, a rescue of which cost the state the equivalent of 40 percent of annual output, will be subject to the ECB's tests. Nouy said that while work was still needed, particularly on troubled mortgages, the restructured Irish banking sector was moving in the right direction.

"What had to be done has been done or is being done and the Irish banks at the end of these reforms will be able to finance the economy," she said.

(Editing by Catherine Evans)

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