LONDON The European Central Bank has laid out plans to publish an unprecedented trove of data on individual banks - from measures of leverage to non-performing loans - when it completes a landmark health check in October.
The ECB, soon to become Europe's most powerful banking supervisor, also said on Thursday 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 problems and will have between six and nine months to actually raise funds.
The central bank 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 including plans to give banks "partial and preliminary" results in "September/October" while withholding the final results until "very close" to publication.
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 headline capital ratios, the ECB will disclose details of banks' portfolios, including areas where regulators made the largest adjustments to asset valuations.
Standardized ratios for non-performing loans as a percentage of outstanding loans will be given for the first time, along with standardized 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 banks' loan books. European bank valuations have trailed U.S. peers over the financial crisis.
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 weeks.
Vítor Constancio, vice-president of the ECB, said he was confident those that need to can raise additional capital.
"We have seen that since last year banks have been able to raise quite a lot of capital already," Constancio told Reuters Insider television. "There is a lot of front loading since last year by many banks anticipating the exercise.
"All these measures to strengthen the balance sheet - we estimate that since July last year they represent strengthening by 198 billion euros ($268 billion)," he added.
Reuters data show European banks have raised $35.5 billion from selling shares so far this year; others have raised capital by retaining earnings and selling assets.
Gerhard Hofmann, executive board member of Germany's BVR banking association, said: "If the objections of the Comprehensive Assessment are uncontroversial, it is realistic that banks can compile a capital plan within two weeks."
But Michael Kemmer, head of the association of German banks (BdB), whose members include Deutsche Bank and Commerzbank, said: "The designated deadline of two weeks to submit a plan to plug capital holes is too short."
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, economic scenarios.
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 problems in everything from house prices to economic growth and inflation, will be allowed "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.
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.
"Only then can the full results of the comprehensive assessment be determined," the ECB document said. ($1 = 0.7392 Euros)
(Reporting by Laura Noonan; Additional reporting by Andreas Kroener and Paul Carrel in Frankfurt; Editing by Larry King/Ruth Pitchford)