“Italy has nothing to fear, the Italian banking system has proved to be among the most solid of all advanced economies despite a very long crisis that has brought other systems to their knees, it is certainly one of the best supervised ones”. This was stated by Economy Minister Fabrizio Saccomanni on the examination of banks by the ECB, stating that "it allows us to take a further step in the direction of the banking union, an important stone in the construction of an effective Economic and Monetary Union"
Today the Eurotower has announced the criteria with which the big banks will be subjected to the in-depth analysis that will begin in November and will last 12 months. The ECB will in fact proceed to examine the risks, the quality of the assets and a stress test with the aim of improving transparency, identifying and undertaking any corrective actions and strengthening confidence.
There are three elements on which the analysis is based, as reported by the ECB press release:
1) an analysis of risks for supervisory purposes, with the aim of assessing, in quantitative and qualitative terms, the fundamental risk factors, including those in terms of liquidity, financial leverage and funding;
2) an asset quality review designed to improve the transparency of bank exposures through an analysis of the quality of banks' assets, including the adequacy of both the valuation of assets and guarantees, and related provisions;
3) a stress test to verify the resilience of bank balance sheets in stress scenarios. The three elements are closely interconnected. The valuation is carried out against a benchmark of 8% for Common Equity Tier 1 capital drawing on the definition given in the Fourth Directive and in the regulation on capital requirements, including the transitional provisions, both for the quality review as for the stress test baseline scenario. Details of the stress test will be announced at a later date, in coordination with the European Banking Authority. "The deadline for the stress tests on banks has not yet been set", specified Ignazio Angeloni, head of the ECB directorate for financial stability, today in Frankfurt, according to Bloomberg reports.
At the end of the comprehensive assessment, the results will be disseminated in aggregate form, at country and bank level, together with any recommendations on supervisory measures. And they will be published before the ECB takes over its supervisory role in November 2014, part of the Single Supervisory Mechanism. "The evaluation - explains the ECB in the note - represents an important step towards the creation of the single supervisory mechanism and, more generally, towards greater transparency of bank balance sheets as well as consistency of supervisory practices in Europe". As also reiterated by President Mario Draghi: “a single comprehensive assessment applied uniformly to all significant banks, which represent around 85% of the euro area banking system, marks an important step forward for Europe and for the future of the area's economy. Transparency will be your primary goal. We expect the assessment to strengthen private sector confidence in the soundness of euro area banks and the quality of their balance sheets.
