ECB Launches Bank Assessment Exercise

On 23 October 2013, the European Central Bank (ECB) published a note, accompanying press release and transcript of a question and answer session regarding the comprehensive assessment of banks’ balance sheets and risk profiles it will carry out in advance of assuming full responsibility for supervision as part of the single supervisory mechanism (SSM) in November 2014.

The exercise will commence in November 2013 and take approximately 12 months to complete. It will involve approximately 130 “significant”[1] credit institutions established in 18 EU Member States (listed in the annex to the note), covering approximately 85% of euro area bank assets which will be directly supervised by the ECB. It has three main goals:

  • Transparency – enhancing the quality of information available concerning the condition of banks;
  • Repair – identifying and implementing necessary corrective actions; and
  • Confidence building – assuring all stakeholders that banks are fundamentally sound and trustworthy.

The assessment will be carried out in collaboration with national competent authorities and will consist of:

  • A supervisory risk assessment – addressing key risks in banks’ balance sheets, including liquidity, leverage and funding;
  • An asset quality review – examining the asset side of bank balance sheets as at 31 December 2013; and
  • A stress test, building on and complementing the asset quality review by providing a forward-looking view of banks’ shock-absorption capacity under stress.

The outcome of the assessment may lead to a range of remedial action, including changes in a bank’s provisions and capital.

[1] A bank is “significant if:

  • the total value of their assets exceeds €30 billion;
  • the ratio of total assets to GDP of the participating Member State of establishment exceeds 20 per cent, unless the total value of their assets is below EUR 5 billion;
  • the institution is among the three largest credit institutions in a participating Member State.

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