Stressing the European Banks: An Evaluation of the Comprehensive Assessment
30 Pages Posted: 2 Jul 2015
Date Written: July 1, 2015
We use the results of the ECB's Comprehensive Assessment to evaluate the importance of bank business model on risk assessment and the persuasive effectiveness of different supervisory styles on banks’ recapitalization. Our analysis reveals inconsistencies in the information content provided by the various regulatory measures used for assessing bank stability. Moreover, opposite to the RWA density and CET1 ratio, the leverage ratio provides assessments on business models closer to a market-based measure of bank risk. We also find that the effectiveness of the supervisory action depends on the specific type of supervisory model. In particular, countries adopting the hybrid model are more severe and effective in persuading banks to recapitalize preventively. Differently, countries adopting the integrated and the sectorial model seem less prone or able to be effective in their requests.
Keywords: macroprudential regulation, stress test, systemic risk, risk-weighted assets
JEL Classification: G28, G21, G11, G01
Suggested Citation: Suggested Citation