ECB eyes tough terms for bank balance sheet check -paper
FRANKFURT Oct 14 (Reuters) - The European Central Bank will apply the tougher capital conditions implied by the Basel III banking reform when it tests the euro zone's top banks next year ahead of taking over their supervision, ECB Executive Board member Yves Mersch said.
Mersch, who is in charge of setting up the Single Supervisory Mechanism (SSM), told Frankfurt Allgemeine Zeitung in an interview published on Monday that the ECB would present details of how it will test the roughly 130 banks it will supervise directly on Oct. 23.
"As we are dealing with the most important banks of all member states, these significant institutions need extra to reflect their importance in the European context," Mersch was quoted as saying by the newspaper.
Under the new European Union capital requirements (CRD IV) which are applicable from Jan. 1, 2014 onwards, banks will have to have a common equity tier one capital ratio of 4 percent.
However, Mersch said the ECB's balance sheet assessment would be oriented towards the internationally agreed Basel III capital rules for lenders only due to take full effect from 2019, which foresee additional safety buffers to preserve banks' capital in difficult markets.
This implies that the euro zone's biggest lenders undergoing the ECB's health check would face Basel III's 7 percent capital requirement, plus an additional variable capital surcharge for systemically relevant banks.
"If you total all that up, then you will get the figure that we will use as a guide," Mersch told the paper.
He added that the ECB met the heads of all national supervisors last week to agree on key elements for the tests.
"On Oct. 23 it will be presented fully - how the balance sheet analysis will look, how this connects with portfolios, which we will be looking at more closely, and how this balance sheet analysis will tie up with the stress tests."
This would all generate results to be made public in October next year, Mersch said.
The ECB will start supervising euro zone banks from November next year as part of a broader project for closer financial integration in the euro zone - banking union - to avoid a repeat of the financial crisis.
A single mechanism to wind up non-viable banks will form the second pillar of the banking union. (Reporting by Eva Taylor, Jonathan Gould and Alexandra Hudson; editing by Patrick Graham)
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