The ECB has said that any banks which are found to have capital holes or shortfalls in the upcoming Asset Quality Review (AQR) will have just two weeks to come up with plans to fill these gaps and then six months to implement them.
Bankers have said they have been given very little information about how the stress tests will be conducted. One said that was a good thing: “The ECB needs to be seen to do a credible stress test, so the less we know about it, the better,” said one.
The stress tests have already prompted a number of the eurozone’s largest lenders to raise capital in advance of the results. Others have held back dividends or set aside money to have a cushion against any orders to raise capital this autumn.
Under the new rules announced on July 17th, banks will also have the option of retaining earnings from 2014 to plug any holes in their balance sheet arising solely from the AQR, though not from the stress tests. The ECB has cautioned that the first port of call to raise capital should be through private sources. But it has warned that public recapitalisations could be required in certain, more serious situations.
The German banking association BdB warned that banks would find it hard to come up with a plan to meet capital shortfalls within the ECB’s tight deadline.
“The planned two-week deadline to submit a plan to close identified gaps in capital is too short,” it said in a statement. “Those who want to plug capital holes need considerably more time – for example with the sale of portfolios.”
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