More own-up to stress testing Greek plumbing

Euromoney Skew

November 28, 2011

News that financial firms are stress testing systems in case of countries leaving the Euro, comes nearly three weeks after Euromoney exclusively reported that one of the UK's largest banks is doing the same.

So it looks like what Euromoney Skew confirmed nearly 3 weeks ago is now being admitted by more firms.

Companies and banks have been stress testing and preparing its systems for the event that Greece or other countries, such as Italy or Portugal decide to leave the Euro.

According to a report by The Wall Street Journal today:

Companies that provide the plumbing for the $4 trillion-a-day foreign-exchange market are testing systems that could handle trading of previously shelved European currencies.

ICAP PLC, which operates the biggest system for enabling currency trades between banks, said Sunday that it is prepping electronic-trading systems for a possible exit by Greece from the euro zone and a return of the drachma, the country's previous currency.

CLS Bank International, whose platform enables banks to settle their currency trades, is running "stress tests" to prepare for a dissolution of the euro, people familiar with the matter said.

This comes as no surprise to the Euromoney Skew because as the sovereign debt crisis rumbles on, Greece – a thorn in the side for many and the crux of the problem for investors in the Eurozone- is still on the watch list as a potential Euro departee. Eurozone leaders have been pushing to quell market fears on a sovereign debt default contagion by urging Greece to seal a deal, many experts have furiously stated that it would be highly unlikely that Greece would leave the euro.

However, three weeks ago Euromoney Skew revealed that a big UK bank has been rigorously testing and preparing its payment systems for the past 6 months, to see if it could cope with Greece withdrawing from the Euro and switching back to the Drachma, according to a source close to operations in transaction banking at big UK bank.

“[The bank] has been working on the scenario that if Greece were to leave the Euro over the weekend, yet it was announced on a Monday (which is a feasible scenario these days) – how would our systems cope with facilitating payments and moving cash if accounts were in Drachma? At the moment [the bank] are rigorously going through the process of analysing all businesses and systems to figure out how the systems would cope if Greece and even countries like Italy and Spain were to leave the Euro.”

Apparently, the big UK bank have been working closely with the UK’s Payments Council, by feeding back information and analysis of how systems would cope if Greece were to revert back to the Drachma.

“According to the same source, the transaction banking unit have already seen a switch in money management in Greek accounts. The transaction banking unit are already seeing money being moved/transferring out of [the bank] PLC accounts in Greece, but it’s actually out of concern for collateral and not counterparty risk.”

While, this may seem like standard practice across the industry, there is no collective industry group working on this issue with the Payments Council so banks or companies would have to take the active decision to carry out such tests rather than be forced by compliance.

- Euromoney Skew Blog

More own-up to stress testing Greek plumbing

News that financial firms are stress testing systems in case of countries leaving the Euro, comes nearly three weeks after Euromoney exclusively reported that one of the UK's largest banks is doing the same.

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