New ECB Approach to Bank Risks May Lead to Higher Capital Rules

The European Central Bank’s new approach to capital thresholds may lead to stricter requirements for some lenders, according to Italian bank executives.

The ECB is drawing up capital requirements tailored to individual lenders, an exercise known as the Supervisory Review and Evaluation Process. Bank-specific risks to liquidity, capital and credit are all under scrutiny in a process designed to prevent the need for bailouts.

“The SREP review may lead the central bank to seek higher capital ratios for some banks,” Alessandro Vandelli, chief executive officer of Banca Popolare dell’Emilia Romagna SC, told reporters in Milan.

Italy’s lenders are struggling with a record 192 billion euros ($215 billion) of non-performing loans. Most went bad during the last three years, when the country was mired in recession. The country’s five biggest lenders set aside 46 billion euros to cover potential losses on credit in 2013 and 2014.

“We expect the ECB will complete the analysis by October,” Banca Popolare di Milano Scarl CEO Giuseppe Castagna said, speaking to reporters in Milan. “We aren’t under pressure, but for some banks the review may mean the need to re-capitalize.”

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