ECB Publishes Results of Supervisory Review and Evaluation Process
ECB published the aggregate outcome of its 2018 Supervisory Review and Evaluation Process (SREP). The overall 2018 SREP outcome showed that governance and risk management of banks worsened from the previous SREP cycle, while the assessment of management of liquidity and funding risks remained largely unchanged. The assessment concludes that risk management framework of a number of banks should continue to improve.
The overall SREP demand for common equity tier 1 (CET1) capital increased to 10.6% in 2018 from 10.1% in 2017, which was driven by the last step of the phase-in of the capital conservation buffer. The overall SREP demand excludes systemic buffers and countercyclical capital buffer (CCyB). Most significant institutions already have capital levels above the CET1 levels and buffers required by ECB and national authorities, respectively. CET1 is the highest quality capital of a bank, consists largely of common stock, and measures the capital strength of a bank. In addition to asking banks to hold certain amounts of capital, ECB also imposed liquidity measures as part of the SREP, which may include improving the process of assessing their liquidity needs, their funding plans, and/or intraday liquidity. Furthermore, ECB imposed qualitative measures on more than eighty banks, covering a wide range of weaknesses from internal governance and risk management to non-performing loans and data quality.
ECB Banking Supervision prepares an individual SREP decision for each bank it supervises. This is in addition to the daily, ongoing supervision where ECB supervisors assess a bank’s business model, governance, and risk as well as its capital and liquidity. The results of the stress test conducted in 2018 also informed the SREP decision. The ECB Banking Supervision has conducted four SREP exercises since 2014. Using common methodology and common decision-making processes has allowed ECB to compare peers and analyze banks on a broader scale.
Related Links
Keywords: Europe, EU, Banking, SREP, Stress Testing, Basel III, SSM, Regulatory Capital, Banking Supervision, ECB
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Jing Zhang
Quantitative researcher; credit risk modeling and analysis expert; in-demand industry speaker; published author and CCAR authority
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Related Articles
PRA Consults on Implementation of Certain Provisions of CRD5
PRA, via the consultation paper CP12/20, proposed changes to its rules, supervisory statements, and statements of policy to implement certain elements of the Capital Requirements Directive (CRD5).
EIOPA Report Identifies Key Financial Stability Risks for Insurers
EIOPA published the financial stability report that provides detailed quantitative and qualitative assessment of the key risks identified for the insurance and occupational pensions sectors in the European Economic Area.
EBA Publishes Risk Dashboard for First Quarter of 2020
EBA published its risk dashboard for the first quarter of 2020 together with the results of the risk assessment questionnaire.
EBA Issues Updates on Stress Test Exercise for Banks in EU
EBA announced that the next stress testing exercise is expected to be launched at the end of January 2021 and its results are to be published at the end of July 2021.
PRA Proposes Guidance Related to Matching Adjustment under Solvency II
PRA published the consultation paper CP11/20 that sets out its expectations and guidance related to auditors’ work on the matching adjustment under Solvency II.
MAS Issues Guidance on Dividend Distributions by Banks
MAS published a statement guidance on dividend distribution by banks.
APRA Updates Guidance on Capital Management for Banks
APRA updated its capital management guidance for banks, particularly easing restrictions around paying dividends as institutions continue to manage the disruption caused by COVID-19 pandemic.
FSB Report Reviews Macro-Prudential Framework and Tools in Germany
FSB published a report that reviews the progress on data collection for macro-prudential analysis and the availability and use of macro-prudential tools in Germany.
EBA Urges Firms to Finalize Preparations for End of Brexit Transition
EBA issued a statement reminding financial institutions that the transition period between EU and UK will expire on December 31, 2020; this will end the possibility for the UK-based financial institutions to offer financial services to EU customers on a cross-border basis via passporting.
SRB on Operational Continuity in Resolution and FMI Contingency Plans
SRB published guidance on operational continuity in resolution and financial market infrastructure (FMI) contingency plans.
