U.S., Britain expected to push Europe for public banks stress test

U.S. and British officials are expected to urge Europe to perform bank stress tests as a way to calm concerned investors and restore confidence worldwide.

Treasury Secretary Timothy Geithner is expected, along with others, to push for a more public disclosure of strong and weak banks in Europe that could help calm worries during a meeting of finance leaders from the Group of 20 in Busan, South Korea, over the next couple of days. 

"I think the Europeans have laid out a very strong, very comprehensive program of policy reforms and financial support to help the countries of Europe manage through these tensions and pressures," Geithner told reporters Wednesday. "I do think there's a very good case for trying to bring more transparency and disclosure to these markets and to major institutions. And I think there's broad support in Europe for doing that, again, because it reflects basic reality — uncertainty has a price."

White House spokesman Bill Burton agreed earlier Wednesday, saying, "the United States is confident that European leaders have been doing the right thing by putting in place reforms that help to keep their financial institutions strong and help to shore up their own economies." 

British Financial Secretary to the Treasury Mark Hoban went as far as demanding today that eurozone banks undergo stress tests. 

"A genuine, rigorous stress-testing exercise is urgently needed to answer questions around solvency in severe market conditions," Hoban said in Brussels. 

Two days ago, the European Central Bank's (ECB) annual report suggested that eurozone banks may have to reduce the value of their assets by $240 billion by 2011. 

"Only this way can we restore true stability and confidence in this sector in the near-term," said Hoban, who mostly blamed ECB for creating "severe strains" in the banking system. 

The European Union has moved forward with $1 trillion in help for struggling financial institutions as Greece's ability to repay its debt and concerns about banks in Spain and Portugal have caused widespread market volatility. 

During the U.S. financial crisis, stress tests provided a measure of reassurance and required 10 U.S. banks to raise $75 billion from either private or government sources. In response, the Treasury Department provided for the availability of $700 billion. 

But while that helped here, raising the fund may prove challenging for European banks and countries that are not only struggling but differ greatly in their economic structures. 

European banking supervisors performed stress tests last year on the region's bank but released only limited details.