Featured Product

    ECB Finalizes Guide on Supervisory Approach to Bank Consolidation

    January 12, 2021

    ECB published a guide that sets out the supervisory approach to consolidation in the banking sector. The guide was finalized post a consultation process, which ended on October 01, 2020. ECB also published a feedback statement for the comments received on this guide. As part of the supervisory approach, ECB will use certain tools to facilitate sustainable consolidation projects. Such projects must be based on a credible business and integration plan, improve the sustainability of the business model, and respect high standards of governance and risk management. The guide addresses key issues such as Pillar 2 capital requirements of the combined entity, treatment of badwill (the difference between the re-evaluated book value of a bank and the price the acquirer pays), and permission for temporary use of the already approved internal models.

    The guide covers the overall approach to the supervisory assessment of consolidation projects, the supervisory expectations regarding consolidation projects, the supervisory approach to key prudential aspects of the consolidation transaction, the ongoing supervision of the newly combined entity, and the application of this framework to consolidation transactions involving less significant institutions. Banks under resolution do not fall within the scope of the guide. The guide clarifies the following:

    • ECB will not penalize credible integration plans by setting higher Pillar 2 capital requirements. Furthermore, during the application process, it will communicate to banks an indication of the capital levels the combined bank will need to maintain.
    • Supervisors expect the profits stemming from badwill to play their role as capital of the combined bank. This means that banks are expected not to pay out, in dividends, profits stemming from badwill until the sustainability of the business model has been firmly established. ECB expects the acquirer to take advantage of a relatively low acquisition price to increase sustainability.
    • ECB will accept temporary use of the existing internal models, subject to a strong roll-out plan.

    The approach taken is founded on the baseline case whereby a bank subject to the Single Supervisory Mechanism (SSM) intends to acquire the control of another bank subject to the SSM. These principles remain valid with the necessary adaptations in all other cases, even when a non-bank or non-SSM bank is involved. All cases involving the proposed acquisition of a bank subject to the SSM fall under the common procedures of ECB and the relevant national competent authorities. Past experience shows that there is no “one size fits all” approach when it comes to banking sector consolidation. Consequently, a case-by-case approach based on proportionality in the application of these principles should be expected. ECB encourages parties considering consolidation to engage with supervisors early on. This will allow ECB to give preliminary feedback on such projects.

     

    Related Links

    Keywords: Europe, EU, Banking, Basel, Proportionality, SSM, Regulatory Capital, Internal Model, Pillar 2, Dividend Distribution, ECB

    Featured Experts
    Related Articles
    News

    BIS Examines Use of Big Data and Machine Learning at Central Banks

    BIS published a paper that provides an overview on the use of big data and machine learning in the central bank community.

    March 04, 2021 WebPage Regulatory News
    News

    APRA Finalizes Reporting Standard for Operational Risk Requirements

    APRA finalized the reporting standard ARS 115.0 on capital adequacy with respect to the standardized measurement approach to operational risk for authorized deposit-taking institutions in Australia.

    March 03, 2021 WebPage Regulatory News
    News

    ECB Publishes Guide for Determining Penalties for Regulatory Breaches

    ECB published a guide that outlines the principles and methods for calculating the penalties for regulatory breaches of prudential requirements by banks.

    March 02, 2021 WebPage Regulatory News
    News

    MAS Sets Out Good Practices to Manage Operational Risks Amid COVID

    MAS and The Association of Banks in Singapore (ABS) jointly issued a paper that sets out good practices for the management of operational and other risks stemming from new work arrangements adopted by financial institutions amid the COVID-19 pandemic.

    March 02, 2021 WebPage Regulatory News
    News

    ACPR Announces New Data Collection Application for Banks and Insurers

    ACPR announced that a new data collection application, called DLPP (Datalake for Prudential), for collecting banking and insurance prudential data will go into production on April 12, 2021.

    March 02, 2021 WebPage Regulatory News
    News

    BCB Maintains CCyB at 0%, Initiates First Cycle of Regulatory Sandbox

    BCB announced that the Financial Stability Committee decided to maintain the countercyclical capital buffer (CCyB) for Brazil at 0%, at least until the end of 2021.

    March 02, 2021 WebPage Regulatory News
    News

    EIOPA Launches Study on Non-Life Underwriting Risk in Internal Models

    EIOPA has launched a European-wide comparative study on non-life underwriting risk in internal models, also kicking-off of the data collection phase.

    March 01, 2021 WebPage Regulatory News
    News

    SRB Publishes Overview of Resolution Tools Available in Banking Union

    SRB published an overview of the resolution tools available in the Banking Union and their impact on a bank’s ability to maintain continuity of access to financial market infrastructure services in resolution.

    March 01, 2021 WebPage Regulatory News
    News

    EBA Consults on Pillar 3 Disclosure Standards for ESG Risks Under CRR

    EBA is consulting on the implementing technical standards for Pillar 3 disclosures on environmental, social, and governance (ESG) risks, as set out in requirements under Article 449a of the Capital Requirements Regulation (CRR).

    March 01, 2021 WebPage Regulatory News
    News

    ESAs Issue Advice on KPIs on Sustainability for Nonfinancial Reporting

    ESAs Issue Advice on KPIs on Sustainability for Nonfinancial Reporting

    March 01, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6655