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The list of banks subject to the assessment is also being published. The assessment is an important step in the preparation of the single supervisory mechanism and, more generally, towards greater transparency of the banks’ balance sheets and consistency of supervisory practices in Europe.
The assessment will commence in November 2013 and will take 12 months to complete. It will be carried out in collaboration with the national competent authorities (NCAs) of the Member States that participate in the single supervisory mechanism, and will be supported by independent third parties at all levels at the ECB and at the national competent authorities.
The exercise has three main goals: transparency – to enhance the quality of information available on the condition of banks; repair – to identify and implement necessary corrective actions, if and where needed; and confidence building – to assure all stakeholders that banks are fundamentally sound and trustworthy.
The assessment will consist of three elements:
i) a supervisory risk assessment to review, quantitatively and qualitatively, key risks, including liquidity, leverage and funding;
ii) an asset quality review (AQR) to enhance the transparency of bank exposures by reviewing the quality of banks’ assets, including the adequacy of asset and collateral valuation and related provisions; and
iii) a stress test to examine the resilience of banks’ balance sheet to stress scenarios.
These three elements are closely interlinked. The assessment will be based on a capital benchmark of 8 per cent Common Equity Tier 1, drawing on the definition of the Capital Requirements Directive IV/Capital Requirements Regulation, including transitional arrangements, for both the AQR and the baseline stress test scenario. The details concerning the stress test will be announced at a later stage, in coordination with the European Banking Authority.
The comprehensive assessment will conclude with an aggregate disclosure of the outcomes, at country and bank level, together with any recommendations for supervisory measures. This comprehensive outcome will be published prior to the ECB assuming its supervisory role in November 2014, and will include the findings of the three pillars of the comprehensive assessment.
ECB President Mario Draghi said: “A single comprehensive assessment, uniformly applied to all significant banks, accounting for about 85 per cent of the euro area banking system, is an important step forward for Europe and for the future of the euro area economy. Transparency will be its primary objective. We expect that this assessment will strengthen private sector confidence in the soundness of euro area banks and in the quality of their balance sheets.”
Further details of the exercise are provided in the attached overview of the key features of the comprehensive assessment.
Q&As with Ignazio Angeloni, Director General Financial Stability on the Comprehensive Assessment in advance of the Single Supervisory Mechanism
The European Banking Federation (EBF) welcomes the publication by the European Central Bank (ECB) of the methodology to be applied and the list of 124 banks to undergo its assessment as it becomes the lead supervisor in the euro area in 2014.
“The methodology presented gives us a valuable overview of how the assessments will be carried out, a vital element in the implementation of the Single Supervisory Mechanism”, said Guido Ravoet, Chief Executive of the EBF.
“We are also pleased that the ECB has broadened the basic criteria of assessment to those banks that are likely to meet them in the near future, even if they do not fully fulfil these criteria yet. We firmly believe that as many banks as possible should be placed under the direct supervision of the ECB, to ensure coherence and consistency”, added Ravoet.
"The comprehensive assessment is vital to the success of the future European supervisory mechanism", said Dr Elke König, President of the Federal Financial Supervisory Authority (BaFin). "The assessment ensures that before the launch of ECB supervision there is transparency as to potential risks and burdens. Diligence is therefore again more important than speed."
Sabine Lautenschläger, Deputy President of the Bundesbank, added: "Setting up the Single Supervisory Mechanism and the preceding intensive assessment of banks' demands will be a tour de force for German banks and their supervisors. I am convinced that the effort will be worthwhile, as the SSM will give us the opportunity of getting the best out of all supervisory cultures in the euro area." Ms König and Mss Lautenschläger pointed out that German banks are already carrying out intensive preparations for the comprehensive assessment.
BaFin/Bundesbank joint statement