ECB targets tough terms for balance sheet check
FRANKFURT: The European Central Bank (ECB) will apply the tougher capital conditions implied by the Basel III banking reform when it tests the eurozone's top banks next year ahead of taking over their supervision, said ECB executive board member Yves Mersch.
Mersch, who is in charge of setting up the Single Supervisory Mechanism (SSM), told Frankfurt Allgemeine Zeitung in an interview published yesterday that the ECB would present details of how it will test the roughly 130 banks it will supervise directly on October 23.
"As we are dealing with the most important banks of all member states, these significant institutions need extra to reflect their importance in the European context," Mersch was quoted as saying by the newspaper.
Under the new European Union capital requirements (CRD IV), which are applicable from January 1 onwards, banks will have to have a common equity tier one capital ratio of four per cent. However, Mersch said the ECB's balance sheet assessment would be oriented towards the internationally agreed Basel III capital rules for lenders, only due to take full effect from 2019, which foresee additional safety buffers to preserve banks' capital in difficult markets.
This implies that the eurozone's biggest lenders undergoing the ECB's health check would face Basel III's seven per cent capital requirement, plus an additional variable capital surcharge for systemically relevant banks.
"If you total all that up, then you will get the figure that we will use as a guide," Mersch told the paper.
He added that the ECB met the heads of all national supervisors last week to agree on key elements for the tests. Reuters