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Balance sheet assessment first big hurdle for EU banking supervisor

14 October 2013

Scrutinising balance sheets will be the first challenge for the European Central Bank (ECB) as it prepares to take over the supervision of eurozone banks in 2014, according to Deloitte.

Clifford Smout, co-head of the Deloitte Centre for Regulatory Strategy, said: ‘Under the single supervisory mechanism, all of the Eurozone’s 6,000 credit institutions will come under the remit of the ECB.

 

'There is still a lot of uncertainty about what is on the balance sheets of the Eurozone’s banks and it is no surprise that the ECB is keen to scrutinise their books in readiness for when it takes up its supervisory role in 2014.'

 

He added that 'it will also be important to consider what happens after the results of the balance sheet assessment are unveiled. It is almost certain that some bank restructuring and recapitalisation will be required. The ECB is planning to issue initial guidance in mid-October to allow banks to prepare for a thorough examination of their balance sheets. It will need to make sure that it gets the balance sheet assessment right as anything less will have serious reputational consequences for the single supervisory mechanism.’

 

On 27 September 2013, we wrote: 

 

MEPs have given the green light for the creation of a single supervisory body for EU banks.

 

The new EU bank supervision system will bring approximately 150 of the EU’s largest banks and will be directly overseen by the European Central Bank (ECB) from September 2014.

 

The MEPs have particularly focused on strengthening the system's transparency and accountability and have tasked the European Banking Authority to develop supervisory practices, which national bank supervisors should follow. 

 

The system, which will be compulsory for Eurozone members, will be open to all other EU countries. MEPs also pushed for a decision-making model for the system, which would allow non-Eurozone countries to take part as equal partners. 

 

The new oversight system involves the transfer of considerable bank supervisory powers from national to EU level. MEPs and various national parliaments have therefore insisted that such a transfer of powers require proportional democratic control of the new supervisor. 

 

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