June 20, 2018

ECB Banking Supervision updated its manual for the Asset Quality Review (AQR) of euro area banks. The update incorporates the implications of the entry into force of the new accounting standard IFRS 9 and takes into account the increasing importance of bank business models focused on investment services, in particular in the context of Brexit. The updated methodology will be applied in AQR exercises going forward.

The manual contains the methodology for assessing the valuations of bank assets from a prudential perspective and provides the information necessary to execute Phase 2 of AQR. The revised manual takes into account the new approach set out in IFRS 9 to impairments of bank assets and classifying financial instruments. The assessment of provision levels on credit exposures follows the IFRS 9 staging model, which introduces the concept of “significant increase in credit risk since initial recognition” of a financial instrument and the related newly introduced forward-looking approach to provisioning. To better assess risks related to bank business models focused on investment services, the updated manual broadens the scope of the fair value exposures review. Beyond level 3 assets, the manual includes complex and illiquid level 2 assets in the scope of the review and introduces some new methodological elements.

Phase 2 of AQR, which involves execution, begins in full following completion of the portfolio selection (Phase 1). This manual provides the detailed methodology for AQR execution. As a significant number of third-party providers may provide support in the execution of AQR, the methodology must be clearly passed down to all practitioners involved. Use of the same methodology for reviewing asset valuation for all institutions becoming subject to direct supervision by ECB ensures a consistent approach across the euro area.

 

Related Links

Keywords: Europe, EU, Banking, AQR, Phase 2, AQR Manual, IFRS 9, ECB

Related Articles
News

US Agencies Consult on Capital Treatment of Land Development Loans

US Agencies (FDIC, FED, and OCC) issued a proposed rule on the treatment of loans that finance the development of land for purposes of the one- to four-family residential properties exclusion in the definition of high volatility commercial real estate (HVCRE) exposure in the regulatory capital rule.

July 12, 2019 WebPage Regulatory News
News

EBA Single Rulebook Q&A: Second Update for July 2019

Under the Single Rulebook question and answer (Q&A) updates for this week, EBA published answers to five questions related to supervisory reporting.

July 12, 2019 WebPage Regulatory News
News

ESMA Updates Manual for European Single Electronic Format in EU

ESMA updated the reporting manual for European Single Electronic Format (ESEF).

July 12, 2019 WebPage Regulatory News
News

FED Updates Supplemental Instructions for Reporting Form FR Y-9C

FED updated the supplemental instructions for FR Y-9C reporting.

July 12, 2019 WebPage Regulatory News
News

EBA Publishes Report on Monitoring Implementation of LCR in EU

EBA published its first report on the monitoring of the implementation of liquidity coverage ratio (LCR) in EU.

July 12, 2019 WebPage Regulatory News
News

EIOPA Consults on Reporting and Disclosures Under Solvency II Review

EIOPA launched a consultation package on supervisory reporting and public disclosure in the context of its work linked with the 2020 Solvency II review.

July 12, 2019 WebPage Regulatory News
News

APRA Applies Additional Capital Requirements to Three Australian Banks

APRA is applying additional capital requirements to three major banks in Australia to reflect higher operational risk identified in their risk governance self-assessments.

July 11, 2019 WebPage Regulatory News
News

IMF Report on 2019 Article IV Consultation on Euro Area Policies

IMF published its staff report in context of the 2019 Article IV consultation on euro area policies with member countries.

July 11, 2019 WebPage Regulatory News
News

FSB to Survey Practices on Cyber Incident Response and Recovery

FSB launched a survey on the industry practices on cyber incident response and recovery.

July 11, 2019 WebPage Regulatory News
News

ECB Appoints New Members of Supervisory Board

The Governing Council of ECB appointed Edouard Fernandez-Bollo, Kerstin af Jochnick, and Elizabeth McCaul as representatives to the Supervisory Board of ECB Banking Supervision, for a five-year non-renewable term.

July 11, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 3441