Terry Murden: Are bank stress tests missing bigger picture?

THE banks are certainly trying. After the debacle of the credit boom years they've set about restoring their balance sheets and presenting themselves as responsible, reformed institutions.

But the legacy of those pre-crash days are still with us. They may be doing all they can to shore up capital reserves - all the UK banks achieved pass marks in the most recent stress tests - but their exposure to the problem that won't go away is threatening to undermine all their good work.

The test report reveals that the UK banks have 214 billion of loans outstanding in the troubled Eurozone's weakest nations. Royal Bank of Scotland accounts for almost 100bn of that total.

RBS issued a statement on Friday welcoming the stress test verdict from the European Banking Authority and stated that it "continues to make good progress implementing its restructuring plans, including the de-risking of its balance sheet". We must hope that it is throwing a small army of bean counters at these de-risking procedures to ensure it is not the biggest casualty if any of the so-called PIIGS - Portugal, Ireland, Italy, Greece and Spain - default on those debts.

According to the EBA, RBS and its three main rivals were deemed to have sufficient reserves to withstand another shock to the system. Sadly, that is what the EBA said last time - just before the Irish banks, which passed the tests, imploded.

This time, the EBA has taken sovereign debt issues into account but that has not stopped critics continuing to question whether it has done enough to head off another crisis. After all, it was the overhang of debt and the uncertainties surrounding it that contributed to the 2008 collapse.

The European markets will give their verdict on the EBA tests when they open tomorrow and it should give us a clearer idea of whether investors feel sufficiently comforted. But there must be some concern that they'll see it as papering over the cracks.

Consumers will have to wait for reforms

A NEW battleground has emerged in financial services which will have set a few nerves jangling. For some time now the independent financial advisory network has been planning for a revolution in the way they sell products to customers, essentially the banning of commissions. It will transform the investments landscape for both IFAs and companies such as Standard Life and Aegon which are committed to changing a system that was blamed for various mis-selling scandals.

Now the treasury select committee has called for a 12-month delay in implementing what is known as the retail distribution review, fearing that many IFAs are not ready.

It appears the committee's caution is a response to lobbying from within the industry. There are some IFAs who believe the re-training standards to be too demanding and that their costs will rise. Inevitably, however, consumer groups have reacted somewhat angrily to the idea of a delay.Although the Financial Services Authority says it intends to press ahead with the reforms, it doesn't seem to be the end of the story. Andrew Tyrie, chairman of the treasury committee, is angling towards referring this issue to the new Financial Conduct Authority which will take on responsibility for consumer financial advice when the FSA is wound up next year.