ECB Collects First Set of Data for Review of Euro-Zone Banks The European Central Bank has collected the first set of data for its review of the euro zones largest banks, which it plans to use later this year when it tests whether the institutions can withstand a sharp economic downturn. Preparations for the stress test are well under way and we are confident that, in close coordination with the European Banking Authority, the outcome will be transparent and credible, boosting the European banking sector, Vítor Constâncio, vice president of the European Central Bank, said in a statement Monday. Before the ECB takes over the supervision of banks in the euro zone in November, it is conducting a review of the balance sheets of the euro zones largest financial institutions to bolster confidence in European banks and spur new lending to the private sector. The review will include a risk assessment, a balance sheet assessment and a stress test, conducted with the EBA. On Friday, the EBA presented the outlines of this years stress test, which will consist of two scenarios running through three years, 2014-2016: the baseline scenario will be drawn from the European Commissions forecasts, while the adverse scenario will be designed by the European Systemic Risk Board, the European Unions macroprudential supervisor. The stress test will be designed to show whether banks can keep an adequate level of capital in the event of a sharp economic downturn and market shock. To pass the test, banks will have to show a ratio of 8% in core Tier 1 capital relative to their risk-adjusted assets in the baseline scenario, and 5.5% in the adverse scenario. The ECB is finalizing the methodology for its asset quality review, working with national bank supervisors, and the full methodology will be released in the first three months of this year. The ECB will also finalize the selection of bank portfolios that it plans to examine for the review by the middle of this month. Afterward, the national bank supervisors and outside specialists will review banks processes and accounting practices, analyze their credit exposures and provisions, and evaluate their collateral and real-estate assets, the ECB said. The central bank also confirmed Monday that it will apply the parameters released by the EBA for the stress test, and that it will be deploying its own teams to participate in and oversee local bank inspections.
Posted on: Mon, 03 Feb 2014 13:19:42 +0000
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