ECB to Demand Capital Surcharge for Big Banks, Mersch Tells FAZ

The European Central Bank will require large banks to hold an extra capital buffer in the asset-quality review it is scheduled to perform next year, Executive Board member Yves Mersch told Frankfurter Allgemeine Zeitung in an interview published today.

“As we’re operating in the realm of the most important banks in all member states, those ‘significant credit institutions’ need a surcharge that reflects their extraordinary relevance in the European context,” Mersch said.

The ECB will derive the capital requirements underlying its review from European Union laws implementing standards defined by the Basel Committee on Banking Supervision, Mersch said, according to FAZ. Policy makers agreed on the rules for the review last week and will publish them on Oct. 23, he said.

The ECB is slated to take over supervision of euro-area banks next year, after a transition period in which it will assess the quality of the assets of the region’s 130 biggest banks and their resilience to shocks.

“We’re not primarily working toward quantifying a capital gap,” Mersch said. “The main reason for combing through the balance sheets is to restore international markets’ confidence in banks’ balance sheets. That’s why the assessment is to be done according to uniform specifications. Everybody will be tested using the same methods.”

Under the EU laws implementing the so-called Basel III accord, banks have to hold core capital equivalent to at least 7 percent of their risk-weighted assets. Banks have until 2023 to comply with all new capital rules.

On top of that, nine euro-area banks listed by the Financial Stability Board as globally systemically important face surcharges of as much as 2.5 percent from 2016, according to EU legislation. European regulators have the option to add banks to the list.

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