30 October 2014
A report by the European Banking Authority (EBA) found that 24 banks failed the stress test set out to assess the resilience of EU banks to adverse economic developments.
The report also found that in preparation of the stress tests, the EU banks made significant progress in strengthening their capital positions – a further €53.6 billion equity was built up.
Commenting on the results of the stress test, the European Commission stated: ‘Where the exercises have identified net capital shortfalls, the relevant competent authorities, including the [European Central Bank] as the Single Supervisor in the Banking Union as of 4 November, will be in charge of determining and taking any supervisory action needed. Rigorous and timely follow-up actions to the results of the exercises will be absolutely crucial.
In this process, the Commission will make sure that such follow-up actions are in line with EU law. Our priority will be to ensure that any capital shortfalls are met from private sources. If, however, state support is needed, the Commission will apply EU State Aid rules, in particular the Commission's Banking Communication of August 2013, which ensure a level playing field in the single market and that any public support is limited to the minimum necessary.’
Commenting on the ECB’s Single Supervisory Mechanism, co-head of the Asset Quality Review taskforce at KPMG, Francisco Uria said: [The ECB] has made it clear that it will also scrutinise certain qualitative measures. This will have fundamental implications for banks, requiring them to ensure that their technology, processes and risk strategies are able to meet ECB’s future requirements.
‘Similarly it will continue to benchmark banks against their European, rather than national peers, inevitably therefore challenging previously accepted national approaches. Banks that fail to adapt quickly run the risk that they are faced with low supervisory “scores”, which may in turn lead to supervisory actions, such as capital or liquidity add-ons.’