ECB Sets Capital Buffer for Stress Test

The European Central Bank said the definition of capital it uses to stress test banks will be stricter than the one in an imminent review of their assets, as it confirmed that lenders will be required to have a capital ratio of 8 percent.

The capital definition applicable on January 1, 2014 will be used for the asset-quality review, while the definition valid “at the end of the horizon” of the stress test will be used in that evaluation, the Frankfurt-based central bank said in an e-mailed statement today. The ECB will commence its study in November and conclude the three-part exercise in October 2014 before assuming supervisory powers over the region’s banks. The European Union is scheduled to fully implement global capital rules by 2019.

European officials have entrusted the ECB with overseeing the region’s financial system to prevent a repeat of the turmoil that set off the euro area’s worst recession since World War II. Expanding its mandate from setting monetary policy to direct oversight in 2014 is the most significant revamp in the institution’s 15-year history, and risks putting its reputation on the line as guardian of the euro.

Bloomberg

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