The next European bank stress tests will be tougher than last year’s, taking sovereign debt risk and liquidity into account, European Union Financial Services Commissioner Michel Barnier said.

“We also need a credible response after the tests, after a weakness has been discovered,” Barnier told reporters following a meeting of EU finance ministers in Brussels today. He also said banks should show moderation in awarding bonuses while people in other industries are “suffering.”

The finance ministers and European Commission officials discussed tougher criteria for stress-tests on banks as the region seeks to bolster confidence in its financial industry.

Last year’s stress tests were criticized as not being stringent enough after they indicated lenders in the 27-nation region were shown to need only 3.5 billion euros ($4.7 billion) of new capital, about a 10th of the lowest analyst estimate. The tests didn’t include an assessment of how banks would cope with a sovereign default.

There is “general agreement” among the EU’s finance ministers that the next round of stress tests “should be marked by total transparency taking into account sovereign risk,” Barnier said.

Authorities “will have to investigate whether or not we need to improve” how sovereign risk is assessed compared with prior tests, Barnier said.

Fresh Tests

European regulators are scheduled to start a fresh round of stress tests on lenders’ capital as soon as February. The London-based European Banking Authority will also conduct a review on “areas of vulnerability in relation to liquidity risk,” the agency has said.

The “methodology and approach taken” in this year’s tests will “build on that used in the 2010 stress test,” the EBA said.

Tests on banks’ liquidity should be carried out “in parallel” to those on lenders’ capital, Barnier said. “This needs to be done in a serious fashion,” he said.

Greater transparency in stress tests can be achieved by having “the same criteria in the U.S. and in Europe,” Belgian Finance Minister Didier Reynders told reporters today.

Reynders said he sought a “common view” with the International Monetary Fund on the tests.

“We’re currently designing the methodology and then the tests will be conducted with more rigor,” Olli Rehn, the EU’s Economic and Monetary Affairs Commissioner, said yesterday.

On bonuses, Barnier said banks in Europe shouldn’t “lose sight of the economy and society.”