Review of the 2017 SREP results

14-03-2018

This report looks at the methodology used by the ECB to carry out its supervisory evaluation of banks (“SREP”), as well as at the aggregate results disclosed by the supervisors and the figures released over time by individual banks. Our review suggests that greater disclosure may improve uniformity in how the SREP is implemented across institutions, as well as consistency between SREP analyses and supervisory priorities. Disclosure towards banks could be enhanced by using a standard, detailed template in the communication of the SREP findings (including “horizontal” benchmarking analyses and differences between supervisory computations and the banks’ own estimates). The release of SREP results to the public, while strengthening market discipline, may trigger undesirable reactions by customers and market counterparties; for banks with listed financial instruments, however, the additional capital requirements following from the SREP meet the definition of inside information provided in the Market Abuse Regulation, and should therefore be publicly disclosed. Finally, higher transparency standards are called for when it comes to the methodologies and metrics used by supervisors to assess specific areas within the SREP.

This report looks at the methodology used by the ECB to carry out its supervisory evaluation of banks (“SREP”), as well as at the aggregate results disclosed by the supervisors and the figures released over time by individual banks. Our review suggests that greater disclosure may improve uniformity in how the SREP is implemented across institutions, as well as consistency between SREP analyses and supervisory priorities. Disclosure towards banks could be enhanced by using a standard, detailed template in the communication of the SREP findings (including “horizontal” benchmarking analyses and differences between supervisory computations and the banks’ own estimates). The release of SREP results to the public, while strengthening market discipline, may trigger undesirable reactions by customers and market counterparties; for banks with listed financial instruments, however, the additional capital requirements following from the SREP meet the definition of inside information provided in the Market Abuse Regulation, and should therefore be publicly disclosed. Finally, higher transparency standards are called for when it comes to the methodologies and metrics used by supervisors to assess specific areas within the SREP.