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Comprehensive Assessment

The European Central Bank starts a comprehensive assessment of Europe’s most important banks in advance of the Single Supervisory Mechanism

At the end of October the European Central Bank (ECB) has taken initial steps for the comprehensive assessment of those banks, which will be subject to the ECB’s direct supervision within the framework of the Single Supervisory Mechanism (SSM).

The ECB thereby complies with the requirements of Article 33(4) of the SSM-Regulation, which stipulate such an assessment before the SSM will enter into force (presumably in November 2014).

Essential elements of the comprehensive assessment are

  • an increase in transparency via a consistent and improved level of information
  • the identification and implementation of necessary corrective actions and
  • a strengthening of the confidence in the European banking sector

The participating 124 banking groups within the EURO area were selected according to their balance sheet volume and relevance within the respective Member State. In Germany alone 24 institutes are examined accounting for 65% of the banking sector.

The Elements of the Comprehensive Assessment

The assessment – presumably to be concluded until November 2014 – comprises the assessment of the market participants’ position regarding key risks (Supervisory Risk Assessment) and an examination of the asset side of bank balance sheets (Asset Quality Review) aimed at ensuring the adequacy of valuation methods and provisioning.

In order to achieve consistency across all countries the ECB defines centrally developed requirements regarding the design and strategy of the assessment, performs continuous quality assurance and consolidates the results. For the implementation at the national level the ECB is supported by national competent authorities.

Based on the results of the supervisory risk assessment and the asset quality review the ECB and the European Banking Authority (EBA) will agree on the modalities and parameters for the subsequent stress test to determine the banks’ shock-absorption capacity under economic stress in the EURO area.

The target capital benchmark for the comprehensive assessment is set to 8% Common Equity Tier 1 taking into account transition rules applicable at the time of asset quality review and stress test, respectively.

 

Consequences for affected banks

The published assessment measures present great challenges for the involved banks. Additional operational and professional workload is very likely to extend far beyond regulatory reporting units. In addition, the ECB announced to introduce stricter requirements on individual bank’s capital and provisioning depending on the individual outcome of the comprehensive assessments.

We can help you!

Benefit from our experience in prior asset quality reviews and stress tests in the European banking market and our comprehensive expertise in risk & finance

  • We invite you to a noncommittal exchange of ideas and questions on this topic with our experts
  • Call upon our expertise to identify possible weaknesses (e.g. in provisioning) and the potential need for adjustments at an early stage
  • Get our expert opinion – in particular, to validate accounting valuation (e.g. for level 3 assets)
  • We support you in discussions with the ECB, the national competent authorities and other parties involved in the assessment

 

We also assist you where operational challenges need to be tackled, e.g. in

  • the collection, validation and aggregation of required data
  • the internal coordination and reconciliation of all tasks related to the comprehensive assessment
  • the processing of ad-hoc requests (e.g. in the form of analyses and documentation)

We gladly schedule an appointment with your experts on this important topic. We look forward to hearing from you!

 

For detailed information on our references and our approach in the domain of comprehensive assessment, call us on +49 69 907370 or email us at info@remove-this.d-fine.de, with the subject line "Comprehensive Assessment".