Is the European banking system more robust? An evaluation through the lens of the ECB's Comprehensive Assessment

Guillaume Arnould and Salim Dehmej

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Abstract: The results of the Comprehensive Assessment (CA) conducted by the ECB seem to attest the soundness of the European banking system since only 8 of 130 assessed banks still need to raise €6 billion. However it would be a mistake to conclude that non failing banks are completely healthy. Using data provided by the ECB and the ECB and the EBA after the CA, we assess the capital shortfalls for each banks by considering the transitional arrangements, an implementation of Basel III sovereign debt requirements and an enhancement of the leverage ratio. In addition we show, that if the CA has been a very complex exercise, it is not the best lens through which the soundness of the eurozone banking system should be evaluated. The assumptions used for the Asset Quality Review (AQR) and the stress-tests lead to week scenarios and requirements that undermine the reliability of the results. Finally we show that the low profitability, the massive dividend distribution and the incurred fines, give rise to concern on the ability of eurozone banks to meet the incoming capital requirements.

Keywords: Financial stability; stress tests; banking; financial regulation; Basel III (search for similar items in EconPapers)
Date: 2015-07
New Economics Papers: this item is included in nep-ban, nep-cba and nep-cfn
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01222489
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Citations: View citations in EconPapers (3)

Published in 2015

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Working Paper: Is the European banking system more robust? An evaluation through the lens of the ECB's Comprehensive Assessment (2015)
Working Paper: Is the European banking system more robust? An evaluation through the lens of the ECB's Comprehensive Assessment (2015)
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