Brussels, 03/02/2014 (Agence Europe) - On Monday 3 February, the European Central Bank (ECB) discussed preparations for its asset quality reviews for European banks to be directly supervised by the ECB from November 2014, when it becomes the eurozone's bank supervisory body.
The methodology of the asset quality reviews to be done by the ECB will be decided upon at the end of the first quarter, along with details of the stress tests to measure banks' ability to survival an upheaval in the economy over a three-year period from the end of 2013 to the end of 2016. The ECB backs the parameters decide upon by the European Banking Authority (EBA). The baseline scenario requires banks to hold at least 8% of optimal quality capital and at least 5.5% in the event of severe turbulence (see EUROPE 11009).
Capital requirements will be treated differently according to their origin: “A shortfall relative to the baseline scenario will require that capital be raised in the nearer term, whereas a shortfall arising from the adverse scenario may only require capital to be raised over a more extended period, on the basis of an agreed capital plan”, explained the ECB in a press release.
The bank also provided details of how non-performing loans will be dealt with. Over and above a 90-day period following the maturity of a security, it will be deemed non-performing even if the counterparty has not formally defaulted. Special rules for sovereign bonds have been laid down. All sovereign bond positions and maturity dates will have to be fully notified, explains the bank.
ECB staff will joint bank supervisory bodies in the member states to carry out inspections of banks on the ground as part of the asset quality reviews.
Promising a transparent and credible exercise, the ECB vice-president, Vitor Costancio, said that European banks were in the process of preparing for the tests and building up their balance sheets by raising capital on the markets and/or making provisions ahead of the publication of the test results in October. This will have a pro-cyclical tendency and slow down the granting of loans to the real economy but will help stimulate recovery from 2015 due to the confidence it will generate, he added.
Danièle Nouy, chair of the bank supervisory board at the ECB, said the quality of the exercise and the way it is carried out are key to ensuring the loan portfolios of the biggest banks are properly assessed. The bank supervisory board was set up in order to hive off bank supervision from monetary policy at the ECB. (MB/transl.fl)