The European Central Bank will look at banks’ expected legal costs as part of its asset-quality reviews and stress tests of euro-area banks, said Armand Schouten, head of the international banks department in the Dutch central bank’s supervision division.
He spoke to reporters on May 26 in Amsterdam.
On how the ECB will look at legal costs in the Comprehensive Assessment:
“In the AQR we look at the process of taking provisions for legal costs. At that point, we don’t look at the size of it. But that will be done in the stress test. That way, we look at this from two different perspectives.”
“In the AQR we looked at the processes, apart from checking the loans. Is this accounted for in the right way? How does a bank calculate its provisions? Has that been done in the right manner? One of the processes we also look at is how a bank judges the legal costs it expects. We looked at that in the AQR. It’s also part of the stress test. In the stress test the bank must show the actual amount of legal costs it expects in the coming period. We will also give our opinion whether this is realistic or not.”