ECB embarks on the risky trip to Eurozone banking universe

Olli Rehn, Vice-President of the European Commission in charge of Economic and Monetary Affairs and the Euro, participated in the EC/European Central bank (ECB) joint conference on Financial Integration and Stability. (EC Audiovisual Services).

Olli Rehn, Vice-President of the European Commission in charge of Economic and Monetary Affairs and the Euro, participated in the EC/European Central bank (ECB) joint conference on Financial Integration and Stability. (EC Audiovisual Services).

The Single Supervisory Mechanism (SSM) of Eurozone banks has completed its cycle of approvals by all EU institutions and comes into force as from next month. After one year from now, that is as from November 2014, the European Central Bank will be responsible for the health of Eurozone’s banking system. Under the provisions of the relevant SSM Regulation, the ECB will be directly supervising, and therefore being responsible for the quality of assets of a round number of 130 ‘systemic’ banks. The competent national authorities, aka the 18 national central banks, will be supervising the rest of Eurozone’s 6000 banks. However, before properly assuming its supervisory role in November 2014, the ECB will provide a comprehensive disclosure of recommendations for measures to be undertaken by the banks.

To realise this task, the ECB today launched an exercise containing risk assessments, asset quality reviews and stress tests for those 130 banks, ahead of undertaking its regular supervisory role in twelve months from now. During this interval, the ECB is expected to conclude the initial comprehensive assessment of those 130 banks, which account for 85% of the euro area banking system. A press release issued this morning by the ECB contains an extensive list of them, operating in the 18 Eurozone member states.

Crucial assessment

For this comprehensive assessment to be meaningful and credible though, Mario Draghi, the President of ECB, has repeatedly stressed that there has to be a mechanism in place to deal with the possible problems to be identified. Those problems may reach up to a point that a lender is found to be beyond or close to limit of repair. Consequently, the much debated Single Resolution Mechanism and Fund, which will undertake the task of resolving or recovering a failing or close to failure bank, has to be in place.

To this effect, there is an on-going and far reaching debate over a Commission’s “Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Bank Resolution Fund and amending Regulation (EU) No 1093/2010 of the European Parliament and of the Council”. In view of the urgent character for the approval of the above regulation, the interested parties have agreed that it will be ready before the end of the year. This is the one way road to accomplish the major EU project of the European Banking Union.

Coming back to the SSM, the ECB has disclosed today the targets and the methodology of this initial bank assessment operation. According to the above mentioned Press release the exercise has “three main goals: transparency – to enhance the quality of information available on the condition of banks; repair – to identify and implement necessary corrective actions, if and where needed; and confidence building – to assure all stakeholders that banks are fundamentally sound and trustworthy”. This said, it becomes evident why the ECB considers the existence of a bank resolution and recovery mechanism as sine qua non, for the assessment exercise to be credible.

Where to look

The ECB also explains the details of the comprehensive bank assessment, to be realised during the next twelve months. Again the Press release states, “The assessment will consist of three elements: i) a supervisory risk assessment to review, quantitatively and qualitatively, key risks, including liquidity, leverage and funding ii) an asset quality review (AQR) to enhance the transparency of bank exposures… and iii) a stress test to examine the resilience of banks’ balance sheet to stress scenarios”.

Obviously, if all those tests are conducted properly on Eurozone’s banking system, there have to be convincing answers to questions which are currently asked about the European banks, concerning their capital adequacy, assets quality and resilience. It’s the global financial community that poses those questions.

No doubt the next twelve months will be a very interesting period, to follow what is going on in Eurozone’s financial system. The problems will arise from the moment when there will be indications that those 130 ‘systemic’ banks cannot raise more capital in the market place, in order to cover their needs.

More capital needed

As the ECB notes, “Since the onset of the global financial crisis, euro area banks have raised around €225 billion of fresh capital and a further €275bn has been injected by governments”. It will be a disaster if the same proportion of market and taxpayers’ capital injections appear as indispensable during the next months. It is also of paramount importance to see which banks will need more taxpayers’ money.

For example the four Greek ‘systemic’ banks have already received from the impoverished taxpayers of this country more that €32bn in new capital injections. Obviously, Athens cannot repeat this generosity. The same is true for the Spanish and probably for more banks. In reality, the core question to be answered is who would pay for the new capital possibly to be needed, and what will become the banks which prove to be beyond limit of repair?

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

the sting Milestone

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

Benefits of rural migration effect often overlooked, new UN report suggests

Politicization of migrant ‘crisis’ in Hungary making them scapegoats, independent UN human rights expert warns

What do the economic woes of Turkey, Argentina and Indonesia have in common?

Latvian economy is thriving, but boosting productivity, improving social protection and transitioning to a low-carbon productive model are vital for sustainable and inclusive growth

EU elections: The louder the threats and the doomsaying the heavier the weight of the vote

Bundestag kick starts the next episode of the Greek tragedy

The Europe we want: Just, Sustainable, Democratic and Inclusive

Blockchain can change the face of renewable energy in Africa. Here’s how

FROM THE FIELD: Weather reports come to aid of Uganda’s farmers

Concern rising over fate of Rohingya refugees sent home by India: UNHCR

The MWC14 Sting Special Edition

We don’t need to ban plastic. We just need to start using it properly

Huawei answers allegations about its selling prices

How telehealth can get healthcare to more people

Eurozone stuck in a high risk deflation area; Draghi expects further price plunge

EU-Japan trade agreement enters into force

UN agency chief calls Ethiopia’s revised refugee law ‘one of most progressive’ in Africa

Digital transformation and the rise of the ‘superjob’

The next Google in biotech: will it be Chinese?

DR Congo: efforts to control Ebola epidemic continue, UN food relief agency doubles assistance to affected people

Amsterdam is getting a 3D-printed bridge

I cycled over 6,000km across the United States to document climate change. Here’s what I learned

3 ways to fight stress at work

Germany’s strong anti-bribery enforcement against individuals needs to be matched by comparably strong enforcement against companies

We all have a ‘hierarchy of needs’. But is technology meeting them?

Technology can help us end the scourge of modern slavery. Here’s how

Saudi Arabia, China, among 14 nations under UN human rights spotlight: what you need to know

European Parliament and Eurovision sign partnership for European Elections

France is building a village for people with Alzheimer’s

Greece’s last Eurogroup or the beginning of a new solid European Union?

UN ‘prioritizing needs’, ramping up aid, as Hurricane Dorian continues to batter the Bahamas

Gender equality and medicine in the 21st century

“Leaked” TTIP document breaks post 8th negotiations round silence and opens door to critics

‘Crippling to our credibility’ that number of women peacekeepers is so low: UN chief

Women must be at ‘centre of peacekeeping decision-making’, UN chief tells Security Council

This app lets you plant trees to fight deforestation

Africa Forum aims to boost business, reduce costs, help countries trade out of poverty

EU–US: What is the real exchange in a Free Trade Agreement?

Eurozone: Even good statistics mean deeper recession

The EU Commission vies to screen Chinese investment in Europe

With security improving in DR Congo’s Kasai, thousands of refugees head home from Angola

Partnerships key to taking landlocked countries out of poverty: UN Chief

These are the world’s 20 most dynamic cities

Biggest London City Banks ready to move core European operations to Frankfurt or Dublin?

New Erasmus: more opportunities for disadvantaged youth

What is digital equality? An interview with Nanjira Sambuli

‘Race against time’ to help women who bore brunt of Cyclone Idai: UN reproductive health agency

At UN, Cuba slams US ‘criminal’ practices undermining country’s development

UN chief hopes for new agreement after Israel concludes international observation mission

Migrant workers sent more money to India than any other country last year

Security Council condemns ‘heinous and cowardly’ attack in Iran

Opening – Parliament expresses support for victims of Fuego volcano in Guatemala

Kenya wants to run entirely on green energy by 2020

A Sting Exclusive: “The Digital Economy and Industry are no longer opposing terms”, Commissioner Oettinger underlines live from European Business Summit 2015

Can Obama attract Iran close to the US sphere of influence?

This is what the world’s CEOs really think of AI

COP21 Breaking News: “We must accelerate the process”, Laurent Fabius cries out from Paris

Migrant caravan: UN agency helping ‘exhausted’ people home

European Citizens’ Initiative: Commission registers ‘Mandatory food labelling Non-Vegetarian / Vegetarian / Vegan’ initiative’

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s