* EU bank supervisors to use common approach from 2016
* Focus on four key areas including risk of fines
By Huw Jones
LONDON, July 7 European Union banking
supervisors will use a common "scorecard" from 2016 to check if
lenders can stay in business, use reliable IT systems and hold
enough capital to pay potential fines, the bloc's main sector
regulator said on Monday.
The proposed scorecard is part of a welter of reforms in the
banking sector intended to shield taxpayers from having to
rescue lenders, as they had to in the 2008-09 financial crisis.
A common scorecard will also make it harder for a national
supervisor to shield a domestic bank from having to hold more
capital than the minimum requirements, as watchdogs will face
spot checks by supervisors from elsewhere in the EU.
Draft guidance from the European Banking Authority (EBA),
the bloc's overall banking watchdog, shows how supervisors will
identify specific risks that would need a bank to hold capital
and liquidity above common requirements for all lenders.
The new guidelines will replace a patchwork of national
approaches to working out how much, if any, extra capital banks
should hold above minimum levels applied across the EU.
For example, not all regulators regularly examine a bank's
business model to see if it is sustainable or that payment
systems are up to scratch.
Even for supervisors that do, there is no common approach,
making it harder for investors to compare the true risks banks
are running. Checks on liquidity, or the ability to withstand
short market shocks unaided, are effectively new for all
The guidelines are out to public consultation until October.
"These guidelines will be applied in the supervision of all
institutions across the union and represent a major step forward
in forging a consistent supervisory culture," the EBA said.
The bulk of EU banking assets are held by large cross-border
banks such as Barclays and BNP Paribas, who
have "colleges" of regulators from the different countries they
operate in. In future, all members of a college will have to
make a consistent assessment of risks.
Business model analysis will be new in some countries and
could be a significant change, as some analysts say that to be a
sustainable a bank needs a return on equity of between 10 and 12
percent. The average in Europe is 6 percent or less.
The guidelines also require checks on whether a bank has
enough capital to withstand a likely fine, which can be huge, as
in the case of this month's $9 billion fine on BNP Paribas for
violating U.S. sanctions.
For major euro zone banks like Deutsche Bank and
Societe Generale, they will be applied by the European
Central Bank, which supervises them from November. Elsewhere
they will be applied by national supervisors like the Bank of
(Editing by David Holmes)