(Adds detail, background, ECB vice president comments)
By Laura Noonan
LONDON, July 17 The European Central Bank on
Thursday laid out plans to publish an unprecedented trove of
data on individual banks - ranging from measures of their
leverage to a standard level of non-performing loans - when it
completes a landmark review of their health in October.
The central bank, 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 issues and will have
between six and nine months to actually raise funds.
The ECB is reviewing the asset valuations of the euro
zone'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 Nov. 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 between now and
the end of the tests, including plans to give banks "partial and
preliminary" results in "September/October" while withholding
the final results until "very close" to publication.
Factbox on what the ECB will disclose ID:L6N0PS2UY
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 the headline results of capital ratios, the ECB
will also make extensive disclosures about banks' portfolios,
including details of the areas where regulators made the largest
adjustments to banks' 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 the state of banks' loan books,
something they have complained about being unable to do in the
Giving investors the tools to make more informed decisions
about European banks is a key objective of the tests, since
European bank valuations have trailed their U.S. peers over the
financial crisis. [graphic: link.reuters.com/buf36v
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 Jan. 1 and Sept. 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 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
"Banks know what we expect and have advance notice to
prepare for the outcome of the comprehensive assessment," said
Vítor Constâncio, vice-president of the ECB.
"Much work has already been undertaken to repair banks'
balance sheets and, encouragingly, this work is continuing," he
added. Reuters data show European banks have raised $35.5
billion from selling shares so far this year; others have also
raised capital by retaining earnings and selling assets.
Gerhard Hofmann, executive board member of Germany's BVR
banking association, said the amount of timing was not
necessarily a problem, since banks would get some advance
warning of major issues.
"If the objections of the Comprehensive Assessment are
uncontroversial, it is realistic that banks can compile a
capital plan within two weeks," he said.
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
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 who fail based on the adverse scenario, which models
negative developments in everything from house prices to
economic growth and inflation, will be allowed to make "limited
use" of other kinds of higher quality capital including some
types of bonds that convert to equity.
The next step in the process will come in early August, when
the ECB discloses how it will join up the results of the
asset-valuation review and a forward-looking stress test on how
well-positioned banks are to withstand future crises.
The ECB said on Thursday that banks have already submitted
preliminary results from their stress tests to their regulators,
based on the macro economic and other scenarios agreed with the
European Systemic Risk Board and published in April.
The ECB will spend the coming weeks carrying out quality
assurance on the stress-test analysis the banks have done. In
September, the stress test models will be updated with the
outcome of the asset review, including revised assumptions about
the categorization of loans and the probability of losses, will
be linked into the stress tests models.
"Only then can the full results of the comprehensive
assessment be determined," the ECB document said.
(Reporting By Laura Noonan; Additional reporting by Andreas
Kroener in Frankfurt; Editing by Larry King)