Here’s Why the ECB Will Require Large Banks to Increase Capital
Some of the biggest European banks may be required to keep a greater part of their assets as a capital buffer in the coming years than previously expected, the Wall Street Journal reports.
According to a source familiar with the European Central Bank, large banks in the eurozone will be forced to keep 8 percent of their risk-adjusted assets in capital. This is an increase from the 7 percent that will be required of banks in the coming years according to the Basel III protocol, which is due to phase in over the course of this decade.
The move will be implemented as part of the central bank’s process of assuming assuming supervision over the region’s banks. The ECB is set to lay out a plan for its comprehensive review of the eurozone’s banks — which will include an asset quality review and stress testing — tomorrow morning, and it is expected to begin the review process by the end of this year. The review will give the central bank, and the public at large, a better idea of the nature of banks’ balance sheets, and many are hoping that any remaining weaknesses in the system will be exposed as a result of the initiative.