The European Central Bank will identify areas which it considers particularly risky ahead of its upcoming bank asset quality review, according to ECB Executive Board member Yves Mersch.
The “comprehensive assessment” prescribed by the European Union law establishing the ECB as the overseer of the banking supervision in the euro area will allow it to address legacy assets and will result in determining possible capital needs at the banks under its scope, Mersch said today in a speech in Alpbach, Austria.
“As we see the comprehensive assessment, it would be composed of three elements,” Mersch said. “The first would be a risk assessment where we would try to define what are the portfolios that contain the most risk and which are the portfolios that will be screened more thoroughly during the balance sheet assessment.”
The identification of the areas that need attention will then be followed by the balance sheet assessment itself, which again would be succeeded by a stress test conducted together with the European Banking Authority, Mersch said.
“All three elements are part of one process and at the end there will be one single figure of capital needs if there is a capital need,” according to Mersch.