Tags: banks | EU | supervisors | business

Bankers' Business Plans to Face Scrutiny From EU Supervisors

Monday, 07 Jul 2014 09:59 AM

Banks in the European Union may have to reconsider their business plans if they can’t convince watchdogs that they’re able to generate cash over a three-year period as part of a push to eliminate differences in the way risks are measured across the 28-nation bloc.

Lenders’ “ability to generate acceptable returns” will be assessed by supervisors, who will give them a score between 1 and 4, with 4 considered “high risk,” under proposals published by the European Banking Authority today. Banks will also be regularly assessed on their internal governance and how vulnerable they are to capital and liquidity shocks, facing the same criteria for the appraisals.

The proposals come four months before the European Central Bank takes over as chief supervisor of 120 of the euro region’s biggest lenders and in the middle of an unprecedented health check on their loans. The guidelines intend to iron out differences in regulators’ opinions on how much capital the lenders should hold.

“This is essential both for achieving more consistent prudential outcomes across the union and for the purposes of reaching joint decisions on the capital and liquidity adequacy of cross-border EU banking groups,” the London-based EBA said in a statement on its website.

Firms have until Oct. 7 to respond to the proposals and the deadline for implementation is Jan. 1, 2016.

Banks’ scores will be updated annually and will serve as a guide “to indicate the likelihood that early intervention measures should be taken, and to act as a trigger for them,” the EBA said.

Regulators will also examine risks to a bank’s day-to-day operations posed by its computer systems, considering factors including the “complexity of the IT architecture” and how a failure would affect a lender “both in terms of losses and reputational damage to the institution,” the EBA said.

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Banks in the European Union may have to reconsider their business plans if they can't convince watchdogs that they're able to generate cash over a three-year period as part of a push to eliminate differences in the way risks are measured across the 28-nation bloc.
banks, EU, supervisors, business
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2014-59-07
Monday, 07 Jul 2014 09:59 AM
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