12 May 2014

ECB/Nouy: Toward the European Banking Union - Achievements and challenges

Europe has made significant achievements over the past five years. Also, the regulatory landscape has been revised substantially. Europe has taken major steps forward, the Banking Union being one of them.

Some challenges, however, still lie ahead. The first and most immediate one is to rebuild confidence in euro area banks. To this end, the comprehensive assessment conducted by the ECB and the national competent authorities (NCAs) will play a key role. The goal of the comprehensive assessment is to foster transparency of banks’ balance sheets, to repair them where needed and, consequently, to foster confidence in the banks, thereby unlocking a needed revival of credit to the euro area economy.

The comprehensive assessment is based on two important pillars: an asset quality review (AQR) and a stress test. The AQR covers €3.72 trillion of risk-weighted assets (RWA), representing 58 per cent of total credit RWA in the scope of the exercise and involving some 135,000 credit files. The stress test will provide a forward-looking view of banks’ shock absorption under stress. The results of these closely interlinked elements will be published in October 2014. The SSM is now proceeding with the actual execution of the AQR (Phase 2), which will be completed by the end of July 2014. Regarding the stress test, the ECB is closely cooperating with the European Banking Authority (EBA). The capital thresholds for the baseline and adverse scenarios are 8 and 5.5 per cent Common Equity Tier 1 respectively. The end result will be more demanding than in previous exercises. Banks will be given six to nine months to address possible capital shortfalls.

The second immediate challenge is to complete the SSM preparatory work before assuming supervisory responsibilities on 4 November. Much work has been done and several milestones have been reached, most recently the Framework Regulation that lays down the rules ensuring the smooth functioning of the SSM. At the same time, good progress is being made in finalising our supervisory model and recruiting supervisors in time.

Long- term challenges are also being dealt with. The goals are to perform supervision with a truly European view, to ensure the effectiveness of the Supervisory Board, to foster convergence of supervisory practices and to integrate local supervisory best practices to the benefit of all SSM members.

The Banking Union is testimony to what Europe can achieve when it sets its mind to it, and by working together the ECB and the NCAs can meet their remaining challenges.

Full speech

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