The Supervisory Review and Evaluation Process in 2016

The goal of the Supervisory Review and Evaluation Process (SREP) is to promote a resilient banking system as a prerequisite for a sustainable and sound financing of the economy.

The SREP in 2016

The ECB draws attention to the following:

  • Under the Market Abuse Regulation of 16 April 2014 of the European Parliament and of the Council, those institutions that have publicly traded securities are expected to evaluate whether Pillar 2 requirements meet the criteria of inside information and should be publicly disclosed.
    Market Abuse Regulation of 16 April 2014
  • The EBA Opinion of 16 December 2015 which says “competent authorities should consider using the provisions of Article 438 (b) of the CRR to require institutions to disclose MDA-relevant capital requirements […], or should at least not prevent or dissuade any institution from disclosing this information”.
    EBA Opinion of 16 December 2015

In light of the above, the ECB does not prevent nor dissuade institutions to disclose MDA-relevant capital requirements.

2016 SREP methodology booklet

Capital requirements

Overall, the amount of Common Equity Tier 1 (CET1) capital that directly supervised banks are expected to hold, as determined by the SREP, will be broadly stable from 2016 to 2017. It remains at an average and median of around 10% of total risk-weighted assets.

  • Given the euro area’s position in the economic cycle, the level of capital in the banking system needs to be broadly maintained – with certain banks now required to hold some additional capital, and other banks required to hold slightly less.
  • The SREP 2016 takes account of the continued sluggish economic environment as banks need to adapt their business models to the current financial conditions and adjust to other challenges such as overcapacity and market fragmentation, all of which have put pressure on their profitability. In this context, it is also important to note that non-performing loans continue to negatively affect banks’ profitability in some countries.

During the SREP, the supervisor not only defines banks’ capital requirements, but may also decide to impose additional measures on banks, including liquidity and qualitative measures.