Stress-test demands flag need for Europe bank hiring spree

Banks in Europe will be forced to embark on a fresh round of hiring as they cope with the demands of regular stress-testing by their regulators, according to a leading accounting firm.

Banks located outside the US tend to have only half the number of employees devoted to handling stress tests compared with their American rivals, a survey of 24 major lenders by PwC revealed. Nearly all the non-US respondents said they have fewer than 20 people dedicated to the task.

The results come as EU banks await further details on the parameters of a major round of balance sheet checks being conducted as a prelude to the creation of a new, centralised euro area regulator in Frankfurt. Under stress tests, regulators subject each bank's finances to a series of economic shocks to ensure they have sufficient capital to withstand adverse conditions.

The US has placed increasing weight on stress testing ever since the 2009 checks that are now seen as having boosted investor confidence in the country's lenders.

European authorities appear to be placing increasing emphasis on stress testing as well, with the Bank of England publishing a discussion paper in October about its own framework.

The European Banking Authority has been conducting regular stress tests in recent years but they have been widely criticised as being too soft.

While banks around the world have been taking on thousands more compliance officers as they cope with more onerous regulation, the PwC survey suggested the hiring spree will have to continue. Only 13 per cent of respondents reported they already have sufficient skilled staff for the purpose of stress testing.

Richard Barfield, PwC financial services risk and prudential director, said: "For most banks, stress testing will require sustained focus over a long period of time and employing more people dedicated to stress testing will be needed. But the rewards are potentially great as those banks that pass stress tests and don't lag behind their competitors could achieve a relatively lower capital buffer."

European regulators are preparing to publish further details about the so-called Comprehensive Assessment of 130 lenders across the euro area, a process led by the European Central Bank in conjunction with the EBA.

Analysts said the tests would have to be more rigorous than in the past to convince investors that the weaknesses in the Continent's banking system are being tackled.

James Chappell, an analyst at Berenberg bank, said: "With the ECB involved people believe this exercise is going to be credible - but the first shots across the bows from the authorities are going to be important. If the eurozone stress scenarios that emerge don't look particularly stressful they are fighting a losing battle."

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