Adequate levels of capital and liquidity are essential for the resilience of individual banks. Banks are expected to assess the risks they face and, in a forward-looking manner, ensure that all material risks are identified, effectively managed and covered by adequate capital and liquidity levels at all times.
ECB Banking Supervision reviews the quality of institutions’ ICAAPs and ILAAPs as a fundamental part of the Supervisory Review and Evaluation Process (SREP). ICAAPs and ILAAPs are assessed annually by Joint Supervisory Teams and feed into the assessments of all SREP elements.
The ECB aims to incentivise banks to improve their ICAAPs and ILAAPs. In this context, it will intensify its supervisory assessments and it will further increase the role the ICAAP and ILAAP play in the SREP.
For example, the ICAAP will play an enhanced role in the determination of Pillar 2 own funds requirements on a risk-by-risk basis, following an individual assessment of each bank.
In 2016 the ECB published its expectations regarding the ICAAPs and ILAAPs of supervised institutions. Following a careful assessment, it identified significant differences in the approaches taken by individual banks and a need for improvements at all banks. It therefore launched a multi-year plan for ICAAPs and ILAAPs in early 2017. The plan sets out a more detailed set of supervisory expectations, taking into account two rounds of feedback from institutions and other industry participants.
Press release
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