European Central Bank (ECB) Executive Board member and Vice-Chair of the monetary authority's supervisory board of banks Sabine Lautenschläger has warned that the fact that markets still fear hidden losses on the balance sheets of European financial institutions was a major reason why current access to loans remained low.

In a financial conference held of Friday in Madrid, Lautenschläger insisted her belief that the stress tests being applied to European banks would help to reduce uncertainty and get lending to the private sector back on track.

"Many market participants believe that bank balance sheets may still carry substantial hidden losses, and the resulting uncertainty is directly reflected in - among other things - refinancing costs and stock market valuations," she stated.

Lautenschläger expressed her belief that banks needed to respond to these uncertainties, because small- and medium-sized firms are particularly affected by the lack of credit supply.

"This lack of confidence affects bank lending conditions, both local and cross-border, for firms in the real economy," she explained.

Yet this Vice-Chair of the bank supervisory board showed her confidence that the both the asset quality review and stress tests would allay market fears and thus help improve credit flows.

"The comprehensive assessment should contribute substantially to breaking this negative causal chain," she said.

JM

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