Making sense of the comprehensive assessment
Viral Acharya, Sascha Steffen 29 October 2014
The ECB conducted a comprehensive assessment of banks and identified capital shortfalls for 25 banks, totalling €25 billion. In this column, the authors provide a number of benchmark stress tests to estimate capital shortfalls. The analyses suggest possible capital shortfalls between €80 billion and more than €700 billion depending on the model. They find a negative correlation between their benchmark estimates and the regulatory capital shortfall, and a positive one between the benchmarks and the regulatory estimates of losses. This suggests that regulatory stress test outcomes are potentially affected by the discretion of national regulators.
The ECB has finalised its assessment of the largest banks in the Eurozone before it commences their regulatory oversight in November 2014. It has now disclosed its own assessment about the solvency of the banking sector (ECB 2014).
Europe's nations and regions Financial markets Monetary policy
systemic risk, ECB. banking supervision, capital shortfalls
Monetary policy and banking supervision
Sylvester Eijffinger, Rob Nijskens 19 December 2012
Eurozone leaders agreed to transfer bank supervision to the ECB with the detail yet to be fleshed out. It is widely acknowledged that giving the ECB two tasks creates a conflict of interest. This column argues that the two functions must be separated by setting up a Supervisory Board, operating independently within the ECB, and by granting the new supervisors a solvency instrument that is independent of the interest rate.
Assigning the task of banking supervision to the ECB raises questions regarding the relationship between its primary mandate, monetary policy, and the newly attributed supervisory powers. A serious concern is that monetary policy runs the risk of no longer being independent. Therefore, it has to be ensured that the functions of supervision and monetary policy are clearly separated and independent from political control. However, monetary and financial stability are very much related and mutually reinforce each other, especially in the longer term.
EU institutions Monetary policy
ECB. banking supervision