ECB Fears Rule Diversity in Bank Assessments

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There is a lack of uniformity in bad-debt classification across the euro area, which could impair a probe by the European Central Bank. The central banking authority is attempting to evaluate the health of member banks, but the inter-country differences might impair that goal, an internal ECB document says.

There are “material differences that, if not considered, would severely affect the consistency and credibility of the exercise,” according to the document, which was obtained by Bloomberg. The writeup was reportedly drafted in November and represents current opinion at the ECB.

The bank probe was also announced in October. An ECB release explains that it was to begin in November and continue for the next 12 months. Three elements comprised the assessment: a supervisory risk assessment to review, an asset quality review, and a stress test to examine the resilience of banks’ balance sheets to different scenarios.

Together, the elements are supposed to give a picture of a bank’s liquidity and risk while enhancing transparency. “The comprehensive assessment will conclude with an aggregate disclosure of the outcomes, at country and bank level, together with any recommendations for supervisory measures,” the press release reads. The findings are scheduled to be published ahead of  November.

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