July 13, 2016 / 3:41 PM / 3 years ago

ECB reassures banks on capital buffers ahead of stress test results

BRUSSELS (Reuters) - The European Central Bank will ask banks to hold broadly the same amount in capital buffers this year as in 2015, its head of banking supervision said on Wednesday.

European Union (EU) flags fly in front of the European Central Bank (ECB) headquarters in Frankfurt, Germany, December 3, 2015. REUTERS/Ralph Orlowski/File Photo

The reassurance from Daniele Nouy comes ahead of results from this year’s stress test of top lenders in the European Union on July 29, with challenges at some Italian banks a focus for markets.

On top of core requirements that are mandatory for all lenders, banks typically hold capital buffers known as “pillar 2” capital to cover additional risks on a bank-by-bank basis.

The ECB oversees the euro zone’s top lenders and sets the level of extra capital needed under a supervisory review and evaluation process, or SREP, whose results will be known in the coming months.

The results of the stress test will shape how much pillar 2 capital a bank must hold.

“The level of pillar 2 capital that we will request this year, all other things being equal, will be around what was requested last year,” Nouy told reporters in Brussels after a meeting with EU lawmakers.

However, this year buffers will be divided between capital requirements and non-binding “guidance”, Nouy said.

While going below mandatory capital requirements triggers automatic restrictions on dividends and other payouts to investors, failing to meet the ECB’s broader “guidance” will not have an automatic impact on banks, Nouy conceded.

But banks must take capital guidance seriously. “If we are not satisfied, it can be transformed into requirements, but it will take some time,” she added.

This year’s stress test will for the first time have no pass and fail threshold for capital, but data on how lenders cope with severe theoretical shocks will be closely watched by analysts.

Reporting by Francesco Guarascio; Editing by Huw Jones

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