Ezb supervisory authority sees banks ready for crisis situation

Ezb supervisory authority sees banks ready for crisis situation

The european central bank (ECB) sees banks in the euro area as being in a good overall position in case customers withdraw money on a large scale.

The liquidity situation of the vast majority of institutions is "comfortable" overall despite some weaknesses, the ECB’s banking supervisors said. 103 institutions participated in the special stress test. No information was provided on individual credit institutions.

The supervisors wanted to know how many days banks can "maintain their activity" in the event of a shock "based on the available cash and collateral without access to the refinancing markets. According to the data, about half of the money houses have lasted more than six months without relying on outside capital. In the case of extreme distortions, it was still more than four months.

This gave institutions more time to respond to financial turmoil than before the financial crisis. A long survival period would give them enough time to implement their emergency funding plans. However, the supervisors see a need for improvement in the management of collateral in the event of a crisis at some institutions.

Since the severe financial and economic crisis of 2008, supervisors have generally tightened regulations and subject institutions to regular health checks. Banks are required to hold sufficient assets to survive 30 calendar days in the event of severe liquidity shortfalls. The ECB, headquartered in frankfurt, has been directly supervising the major monetary institutions in the euro area since november 2014.

According to the ECB, however, universal banks were more severely affected by outflows of funds than institutions with traditional retail banking business. The former are dependent on less stable sources of refinancing, such as deposits from major customers and companies.

The investigation cannot be compared with last year’s comprehensive stress test. At that time, europe’s banking supervisors had assessed how well 48 major banks were prepared for severe crises. The rough stress test together with the european banking authority EBA takes place every two years. In the meantime, the ECB supervisors carried out investigations on specific topics.

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