Business World

Monday 21 January 2019

ECB wants clearer rules on how banks tot up assets

Spain’s Banco Popular ran out of cash after a run on deposits
Spain’s Banco Popular ran out of cash after a run on deposits
Donal O'Donovan

Donal O'Donovan

The European Central Bank (ECB) has published new guidelines that define how the main Eurozone banks should calculate how much capital and cash they must hold for their own safety.

Banks and others have until May 4 to respond.

The change is unlikely to have a direct impact on Irish banks that are among the most heavily capitalised in the euro area, as a result of tough post-crash attention from regulators, but regulatory changes can feed through to customers with potentially dramatic effect.

The ECB's separate push to force banks to reduce the stock of bad loans they hold to 5pc of total lending is behind Permanent TSB's controversial decision to sell €2bn of primary dwelling home (PDH) mortgages in a loan sale aimed specifically at cutting its stock of impaired loans.

That sale sparked a political storm in Ireland, because Permanent TSB is State owned and because the only likely buyers are so called vulture funds.

Meanwhile, the new ECB capital and cash guidelines, which will kick in next year, set out "principles" such as the need for banks to run "stress tests" to quantify their robustness in different circumstances.

Although the proposed guidelines are non-binding, the ECB can threaten banks with higher capital requirements if they fail to comply. The initiative follows the rapid demise of four Eurozone banks in the past year, including Spain's Banco Popular that found itself out of cash after a run on its deposits.

"Supervisory experience shows that banks may need to improve they quality of their internal capital and liquidity adequacy assessment processes," the ECB said.

It said the new guidelines aim to smooth out differences among the roughly 120 large Eurozone banks.

"Banks are expected to assess the risks they face, and in a forward-looking manner ensure that all material risks are identified, effectively managed and covered by adequate capital and liquidity levels at all times," it added.

The ECB will now seek industry feedback on the proposed new rules via a public consultation due to run until May 4.

Meanwhile, economists no longer expect the ECB to change its guidance on future interest rate policy at the Governing Council's March 8 meeting. Analysts surveyed by Bloomberg think the ECB will set an end date for their stimulus programme by July.

Irish Independent

Also in Business