An increased credit risk means that it becomes more difficult and more expensive for the banks concerned to fund themselves on the credit markets, which can hold back lending. This also dampens the real economies in the countries concerned. (Figure: CDS premiums for the banks). Reduced concern, but still not normal In an attempt to assess the stability of the banking sector the Committee of European Banking Supervisors, CEBS, carried out stress tests on 91 European banks in July this year. The results of these stress tests have now been published. The assessment is that all but 7 banks have sufficient resilience to manage a worse scenario in the period 2010–2011. The CEBS has here assumed a weaker economic growth, higher interest rates and poorer stock market than in the European Commission’s forecasts, as well as losses linked to the banks’ holdings of European government bonds. The four major Swedish banks included in the survey managed all of the stress tests with a good margin. 2 The results of the stress tests have generally been well-received by the market. However, it should also be pointed out that there has been some criticism, which has concerned the CEBS’ assumptions not being sufficiently tough. Nevertheless, interest rate differentials towards Germany declined after the CEBS reported its results, as did the basis spreads and the CDS premiums for banks in the four countries concerned, although they have risen again in August and the levels remain higher than they were in the spring.
The FSB working group took on the task of investigating the way in which these benchmarks were fixed and recommending ways to improve them. The group’s work was independent of simultaneous investigations into foreign market manipulation by supervisory authorities in a number of different countries, which resulted in the imposition of fines in November. The final report presented at the end of September found that – unlike the situation for benchmark interest rates – liquidity in the foreign exchange market was high and therefore provided an adequate breadth of data for calculating benchmarks. However, the problem for benchmark fixing in this area stems from a different source, namely the fact that trading orders become heavily concentrated shortly ahead of the fixing time. This gives traders opportunities to manipulate the price of the fixing to their own advantage. In order to eliminate these opportunities, the working group is proposing that the fixing window be widened, thereby broadening the range of data sources. In addition, the group also recommends various codes of conduct guidelines for fixing orders. What is particularly important is to ensure that banks do not share information with each other about customer orders before the fixing. The SNB supports the recommendations contained in the report by the working group. It is now up to the private sector, first and foremost, to implement these recommendations. The reforms carried out so far, with regard to both interest rate benchmarks and foreign exchange benchmarks, are steps in the right direction.