Originally posted on the Real Time Brussels blog.

The U.K. Treasury has just joined the U.S. in urging European authorities to conduct what a Treasury minister calls “genuine, rigorous” stress testing of banks.

In excerpts of a speech he’s due to deliver tonight in Brussels, Mark Hoban, financial secretary to the Treasury, says the tests are needed because “it is clear that doubts remain over the solvency of some European banks.”

He says:

“The extraordinary interventions we have seen in recent weeks by Governments and the ECB were in large part due to severe strains in the banking system. A genuine, rigorous stress testing exercise is urgently needed to answer questions around solvency in severe market conditions. The tests should be transparent both with respect to their results, but also the methods used. Urgent action should be taken with respect to any institution failing the stress test. Only this way can we restore true stability and confidence to this sector in the near-term.”

He talks about how Britain backed a bank levy—but not of the type that the European Commission proposed last week. Britain wants proceeds of the levy to go into general government funds rather than a bank resolution fund, as proposed by the commission.

“We support a bank levy and we are pushing for international agreement. But in tandem, we are considering detailed design and implementation of a UK only levy, drawing on the work the IMF has done to guide the international debate in the absence of an international agreement,” he says. “There is some debate as to whether the proceeds of any bank tax should go into so-called national ‘resolution funds’ or the general budget. As the [International Monetary Fund] has noted, this is a secondary part of the debate and we must remember that tax proceeds remain the responsibility of national parliaments. “The UK supports a bank levy but is concerned about the moral hazard implications of designated funds. Some argue that these concerns can be mitigated if a fund is not permitted to participate in bailouts. We are sceptical. It is hard to see how any tax legislation, European or otherwise, could be crafted which had a credible and legally watertight “no bailout clause” for banks. There would be a major time consistency issue. We want the focus of the discussion to be on the tools that enable institutions to fail in an orderly way… “We back global and European reforms that strengthen markets, promote confidence and transparency and produce better results for businesses and households. This means working together, but we must never lose sight of the lesson of the last three years that it is taxpayers that pick up the bill when one of our banks fails. Some decisions must be taken at home. The British Government will never shirk the difficult choices needed to reform banking and financial regulation and, if we have to, we are prepared to go further and be tougher than our international partners to safeguard our economy.”

Here’s the full speech.