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ECB imposes extra capital charge on 13 banks over leverage risk
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FRANKFURT (Reuters) – The European Central Bank imposed additional capital charges on 13
FRANKFURT (Reuters) – The European Central Bank imposed additional capital charges on 13 euro zone banks this year, judging that they might be taking on more risk than they can absorb.
This “add-on” to the banks’ leverage ratio requirement, which measures a bank’s core capital as a percentage of its total assets, was applied to twice as many banks as last year and was worth between 10 and 40 basis points.
It was the single biggest change in the ECB’s annual evaluation of the 113 banks on its watch, which it generally found well supplied with capital and cash.
“On average, banks maintained solid capital and liquidity positions, well above regulatory requirements,” the ECB said.
Next year, the ECB will focus its supervisory work on risks stemming from geopolitical changes and a more subdued economy.
“The weakening macroeconomic outlook and structural changes in the economy call for heightened vigilance,” it said in a press release. “Geopolitical risks are often not priced in financial markets until they materialise, potentially leading to abrupt risk repricing which could increase risks to liquidity and lead to additional losses.”
(Reporting By Francesco Canepa)
Leverage risk refers to the potential for financial loss that arises when a bank uses borrowed funds to increase its investment capacity. High leverage can amplify both gains and losses, making it a critical concern for financial stability.
A capital charge is an additional requirement for banks to hold a certain amount of capital to cover potential losses. It is imposed by regulatory authorities to ensure banks maintain sufficient capital buffers.
Liquidity refers to the ease with which an asset can be converted into cash without significantly affecting its price. In banking, maintaining adequate liquidity is essential for meeting obligations and managing risks.
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