As the Deputy is aware, the SSM has undertaken a Comprehensive Assessment (CA) of Euro area banks, assessed as significant, in advance of assuming its single supervisory role on 4th November 2014.
The CA has three goals:
- Transparency to understand the condition of the banks.
- Identify and implement corrective actions.
- Confidence building to assure all stakeholders that the banks are fundamentally sound.
A key outcome of the CA is the identification of capital shortfalls against minimum capital ratio benchmarks. If capital shortfalls are identified, the relevant banks will be required to adopt corrective measures and the SSM will be able to monitor and enforce implementation of these measures.
The CA process includes:
- An asset quality review (AQR) which assesses the adequacy of provisions including a review of related collateral; and,
- A stress test which builds on the AQR and provides a forward-looking view of a bank's shock absorption under two scenarios - base case and adverse stress - over the three year time horizon 2014 to 2016.
The CA, which commenced in November 2013, is close to completion with final results due for publication on 26th October. The publication will include individual results for each bank, which will highlight where capital shortfalls were identified, and an aggregate report for all banks included in the CA exercise. Banks with capital shortfalls will have two weeks to submit capital plans detailing how shortfalls will be covered over the subsequent six to nine months.
As part of the CA process, standard scenarios were designed for modelling base and adverse case test scenarios using macro-economic assumptions and these were published and made available on the ECB's website on 29th April last.
The ECB has provided a summary of the CA on its website including background, methodology and timing and I attach the following link for the benefit of the Deputy.
https://www.ecb.europa.eu/ssm/assessment/html/index.en.html
