How many European banks will fail in the 2014 ECB stress test?
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The European Central Bank said it will use stricter rules when stress testing banks’ balance sheets next year than it will to study their assets, as it seeks to prove its credentials as the region’s financial supervisor.
While the ECB confirmed that it will require lenders to have a capital ratio of 8 percent, what qualifies as capital will change over the course of the three-part assessment, the central bank said in an e-mailed statement. The capital definition applicable on Jan. 1, 2014 will be used for the asset-quality review and the definition in force “at the end of the horizon” of the stress test will be used in that evaluation, it said.
The ECB will commence its study in November and conclude the exercise in October 2014 before assuming supervisory powers over the region’s banks. It will execute a preliminary risk check early next year to identify asset portfolios needing further examination, followed by a full review of the quality of banks’ balance sheets. The European Banking Authority will then help conduct a stress test in the course of 2014 as well as an assessment of their sovereign debt holdings.
The two institutions “will agree on, and communicate, further details on the stress test, the methodology and the scenarios to be used and the correspondent capital thresholds in due course,” the ECB said. It will “soon” convene meetings in Frankfurt with the banks that will undergo the comprehensive assessment.
The ECB identified 124 banks which may be subject to the balance-sheet exam on the basis of data as of the end of 2012. The final list will only be compiled in 2014.
If capital shortfalls are identified, banks will be required to adopt “corrective measures,” the ECB said, adding that it will be able to monitor and enforce the implementation of those measures in its new capacity as supervisor.
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