| Author (Corporate) | European Parliament: European Parliamentary Research Service |
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| Publisher | EU |
| Series Title | In-Depth Analysis |
| Series Details | March 2018 |
| Publication Date | March 2018 |
| ISBN | 978-92-846-2712-7 |
| Content Type | Report |
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Please note: Each In-Depth Analysis is assigned a DOI (digital object identifier), which is a safe and long term way of ensuring a hyperlink to the full text of this report. However, when ESO creates this record, on occasion the DOI still has not been activated by the EU Bookshop. If you find the source url hyperlink does not work please use the alternative location hyperlink listed as a related url.This report looks at the methodology used by the European Central Bank (ECB) to carry out its supervisory evaluation of banks (SREP), as well as at the aggregate results disclosed by the supervisors and the figures released over time by individual banks. The report suggested that greater disclosure may improve uniformity in how the SREP is implemented across institutions, as well as consistency between SREP analyses and supervisory priorities. Disclosure towards banks could be enhanced by using a standard, detailed template in the communication of the SREP findings (including 'horizontal' benchmarking analyses and differences between supervisory computations and the banks’ own estimates). The release of SREP results to the public, while strengthening market discipline, may trigger undesirable reactions by customers and market counterparties; for banks with listed financial instruments, however, the additional capital requirements following from the SREP meet the definition of inside information provided in the Market Abuse Regulation, and should therefore be publicly disclosed. Finally, higher transparency standards are called for when it comes to the methodologies and metrics used by supervisors to assess specific areas within the SREP. Note there is separate In-Depth Analysis published in March 2018 with the same title (link via the related hyperlink below) - here is the summary of this report: This paper reviewed the 2017 SREP results with a view to assessing their capital market implications and seeing whether the information provision about the SREP results could be improved. Aggregated SREP information as published by the ECB can be useful in detecting trends in banks’ conditions, but it cannot be meaningfully applied to assess capital market reactions to the SREP results. Bank-level SREP disclosures were voluntary, and therefore were expected to be biased towards news that was favourable to investors in securities. Consistent with this, the authors found that bank stock returns on average were positive on SREP disclosure days. Overall, the 2017 SREP information that was in the public domain was insufficient to evaluate the efficacy of the SREP as conducted by the ECB in terms of improving the regulatory and market discipline of banks. The publication of full bank-level SREP information (by either the ECB or the individual banks) would facilitate such an evaluation, but full disclosure was undesirable as it exposed the banks with the weakest supervisory reviews to potentially very severe market discipline. However, the ECB could improve the information provision about the SREP by requiring banks that choose to reveal any capital regulatory information to disclose a complete breakdown of their CET1 demand to improve data comparability across banks and hence potentially market discipline. |
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| Source Link | Link to Main Source http://dx.publications.europa.eu/10.2861/57526 |
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| Subject Categories | Business and Industry |
| Countries / Regions | Europe |
