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Some banks easing lending ahead of stress tests: ECB’s Honohan

January 10, 2014

By Padraic Halpin and David Goodman

DUBLIN (Reuters) – Some euro zone banks are restricting lending to boost their performance in financial stress tests this year, a member of the European Central Bank’s (ECB) executive board said on Friday.

The ECB will publish health tests of Europe’s biggest banks before it takes over their supervision in November and there are concerns that lending will remain constrained until then and hamper the moderate economic recovery that is taking shape.

“At the moment, across Europe, there is a lot of concern that banks have been holding back lending to look good for tougher stress tests,” Patrik Honohan, who is also the governor of Ireland’s central bank, told a conference.

“To some extent, some banks are doing that, but I don’t see that in Ireland.”

The ECB, which underlined its determination to take action if necessary after it kept interest rates at a record low on Thursday, could try to revive credit activity with another run of the cheap long-term loans (LTROs) it fed into the banking system in late 2011 and early 2012.

Executive board member Peter Praet was quoted as saying last month that Frankfurt could offer lenders more such liquidity if the bank tests crimped their lending.

(Reporting by Padraic Halpin; Editing by David Goodman)