The European Central Bank has laid out plans to publish an unprecedented trove of data on individual banks – from measures of leverage to non-performing loans – when it completes a landmark health check in October.
The ECB, soon to become Europe’s most powerful banking supervisor, also said it will give banks just two weeks to come up with plans to deal with their shortfalls, though they will get some advance warning of major problems and will have between six and nine months to actually raise funds.
The central bank is reviewing the asset valuations of the eurozone’s 128 most important lenders and assessing their ability to withstand future crises. The results will be published in the second half of October, before the ECB takes on bank supervision on November 4.
“The ECB has been very transparent in engaging with banks and aims to provide as many details as possible to markets and other participants on progress in the comprehensive assessment and what the end of the process will look like,” said Danièle Nouy, chair of the ECB’s supervisory board.
As well as publishing a template of the six pages of data it will give per bank, the ECB detailed milestones including plans to give banks “partial and preliminary” results in “September/October” while withholding the final results until “very close” to publication.
As reported by Reuters on July 9, the disclosure template includes the ‘leverage ratio’, a blunt measure of banks’ total assets to equity that lenders are not yet required to disclose. In Thursday’s documents, the ECB said the leverage ratio was “displayed for informational purposes only” and had no impact on banks’ capital shortfall.
Along with headline capital ratios, the ECB will disclose details of banks’ portfolios, including areas where regulators made the largest adjustments to asset valuations.
Standardised ratios for non-performing loans as a percentage of outstanding loans will be given for the first time, along with standardised figures on the level of loan-loss provisions they have taken relative to their bad loans.
That will enable analysts and investors to make more meaningful comparisons between banks’ loan books. European bank valuations have trailed US peers over the financial crisis.
The results will be based on banks’ positions at the end of 2013 but will include details of any funds raised in the capital markets between January 1 and September 30. It will also include information on any fines or litigation costs that have eaten into capital, such as the $9 billion fine levied on BNP Paribas for sanctions breaches.
Banks cannot use asset sales as the default remedy for shortfalls
Banks with capital shortfalls will have to present plans to tackle them within two weeks. They will be given templates showing what the capital plans should look like over the coming weeks.
The ECB said its “general expectation” was that banks would use the purest form of equity capital to cover shortfalls revealed by the asset review and the ‘baseline’, or most likely, economic scenarios.
This means banks cannot use asset sales as the default remedy for shortfalls, although sell-offs are eligible as exceptional measures when the assets are distinctly separate from normal business.
Banks with shortfalls based solely on the asset quality review can offset this with earnings from 2014.
Banks which fail based on the adverse scenario, which models problems in everything from house prices to economic growth and inflation, will be allowed “limited use” of other kinds of higher quality capital, including some types of bonds that convert to equity.