Robustness, validity, and significance of the ECB's asset quality review and stress test exercise

  • As we are moving toward a eurozone banking union, the European Central Bank (ECB) is going to take over the regulatory oversight of 128 banks in November 2014. To that end, the ECB conducted a comprehensive assessment of these banks, which included an asset quality review (AQR) and a stress test. The fundamental question is how accurately will the financial condition of these banks have been assessed by the ECB when it commences its regulatory oversight? And, can the comprehensive assessment lead to a full repair of banks’ balance sheets so that the ECB takes over financially sound banks and is the necessary regulation in place to facilitate this? Overall, the evidence presented in this paper based on the design of the comprehensive assessment as well as own stress test exercises suggest that the ECB’s assessment might not comprehensively deal with the problems in the financial sector and risks may remain that will pose substantial threats to financial stability in the eurozone.

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Author:Sascha SteffenGND
Parent Title (English):SAFE white paper series ; 23
Series (Serial Number):SAFE white paper series (23)
Place of publication:Frankfurt am Main
Document Type:Working Paper
Date of Publication (online):2014/11/03
Date of first Publication:2014/11/03
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2014/11/03
Tag:Asset Quality Review; Comprehensive Assessment; European Banking Authority, Single Supervisory Mechanism; European Central Bank; Stress Test
Issue:2 November 2014
Page Number:45
This report was first published at the request of the Economic and Monetary Affairs Committee of the European Parliament, under the same title, on October 15, 2014.
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Wissenschaftliche Zentren und koordinierte Programme / House of Finance (HoF)
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Wissenschaftliche Zentren und koordinierte Programme / Sustainable Architecture for Finance in Europe (SAFE)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht