The European Central Bank Starts Bank Stress Tests
23 October 2013
The ECB announced today details of the comprehensive assessment of banks to be conducted in preparation of assuming full responsibility for supervision as part of the single supervisory mechanism. The list of banks to undergo the stress tests was also published. In announcing the ECB’s bank assessment, Mario Draghi, the ECB president, warned that several banks would need to fail these tests to show the credibility of the assessments (Bloomberg). Bank share prices fell by 2 to 3 percent after the announcement. The assessment will commence in November 2013 and will take 12 months to complete. It will be carried out in collaboration with the national competent authorities (NCAs) of the Member States that participate in the single supervisory mechanism, and will be supported by independent third parties at all levels at the ECB and at the national competent authorities.
The assessment is an important step in the preparation of the single supervisory mechanism and, more generally, towards greater transparency of the banks’ balance sheets and consistency of supervisory practices in Europe. The exercise has three main goals: transparency – to enhance the quality of information available on the condition of banks; repair – to identify and implement necessary corrective actions, if and where needed; and confidence building – to assure all stakeholders that banks are fundamentally sound and trustworthy.
ECB President Mario Draghi said, “A single comprehensive assessment, uniformly applied to all significant banks, accounting for about 85% of the euro area banking system, is an important step forward for Europe and for the future of the euro area economy. Transparency will be its primary objective. We expect that this assessment will strengthen private sector confidence in the soundness of euro area banks and in the quality of their balance sheets.”
Link to report