Fewer than 10 big banks miss capital requirements

EU seeks deal on early financing of SRF

FRANKFURT, Nov 10, (RTRS): Only a handful of Europe’s top banks have less capital than required and financial regulation is now entering a period of normalcy after years of crisis management, top regulators said on Tuesday.

Fewer than 10 of the 122 banks directly supervised by the European Central Bank don’t have the capital limit set in an ongoing review. But most of them will reach the requirement if they retain earnings from this year, leaving just a handful, Daniele Nouy, the head of the ECB’s regulatory arm said.

“About 10 do not have it yet, but the vast majority of these 10 will have it after retaining earnings of the current year. Less than 10,” Nouy said on the sidelines to a conference.

“The others probably would have needed additional capital anyway — with or without the SREP decision — and they are planning those capital increases.”

The ECB’s Single Supervisory Mechanism (SSM) has slightly increased the amount of additional capital, known as Pillar 2, that the banks under its supervision will need to hold next year compared with 2015.

Some in the banking industry have been worrying that the increase in the 2016 capital requirements would be the harbinger of further increases in the coming years.

But once the new Pillar 2 levels are set as part of each bank’s Supervisory Review and Evaluation Process (SREP), they were likely to serve as a blueprint for future demands, Nouy said.

“We believe we are quite close to a steady state,” Nouy said, referring to any possible increases in Pillar 2 levels. “We think that’s it for us, based on the current risk profile.”

Still, she added some bank could still face additional requirements as regulations are phased in until 2019 and banks to need to meet so-called Total Loss Absorbing Capacity (TLAC) requirements.

Adam Farkas, executive director of the European Banking authority also said that regulators are entering a new phase as banks have already made significant headway in building capital and adjusting their operations.

“The new regulatory structure is moving toward steady state, a regular operational mode,” Farkas told a conference.

In a sign of normalisation, banking authorities will not assign passing or failing grades in next year’s stress test, using the results instead as a basis of next year’s SREP process.

Meanwhile, European Union finance ministers are seeking a deal on Tuesday over how to finance the early stages of a euro zone fund for troubled banks that will go live in January, officials said.

The euro zone’s single resolution fund (SRF) will cover the expenses of winding down a bank from the start of next year.

It will be financed from annual contributions from banks, but will only reach its target size of 55 billion euros ($59 billion) after seven years, leaving it potentially vulnerable if a banking crisis strikes at the beginning of its operations.

To make sure the fund is solvent from the start, finance ministers gathered in Brussels for a regular meeting will try to agree on how the fund should get an initial bridge financing.

“The bridge financing for the single resolution fund is one of the issues where we need to make progress,” European Commission Vice President Valdis Dombrovskis told reporters ahead of the meeting.

The fund “needs to start working in a credible setting so that there is no question about financing availability to the SRF,” Dombrovskis added.

The head of the group of euro zone finance ministers, Jeroen Dijsselbloem, is also hoping for a compromise on bridge financing on Tuesday, he told reporters, arriving at the meeting.