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November 09, 2018

ECB published the guides for capital and liquidity management by banks in EU. In these guides, ECB sets out its expectations from internal capital adequacy assessment processes (ICAAPs) and internal liquidity adequacy assessment processes (ILAAPs) of banks. The guides, which are not legally binding, will be applied from January 01, 2019 and replace the expectations published in January 2016. They aim to assist banks in strengthening their ICAAPs and ILAAPs, and to encourage the adoption of best practices.

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. ECB aims to motivate banks to improve their ICAAPs and ILAAPs. In this context, it will intensify its supervisory assessments and 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.

Earlier, ECB had published its expectations about the ICAAPs and ILAAPs of supervised institutions in 2016. 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. In total, ECB received about 800 comments on the guides, which were assessed and subsequently used to clarify the expectations regarding institutions’ ICAAPs and ILAAPs. 


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Effective Date: January 01, 2019 (not legally binding)

Keywords: Europe, EU, Banking, ICAAP, ILAAP, SREP, SSM, Capital Adequacy, Liquidity Risk, ECB

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