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ECB doubles deadline on bank capital review

A review of European banks' capital risk is expected to take four years, double the previous estimate for the project, the Financial Times said18 Aug 2015

The European Central Bank (ECB) is looking for suppliers to work on a review of European bank's risk, according to a tender document that has been seen by the Financial Times. The tender aims to engage 10 service providers to manage the project, which was first proposed by the ECB in March, and gives a four-year timescale for the work, the Financial Times said.

The ECB has said that the risk weighted assets (RWAs) of the 123 banks that it supervises should be harmonised, as they vary too much. RWA is used to calculate a bank's capital ratio.

Banking expert Tony Anderson of Pinsent Masons, the law firm behind Out-Law.com said: "Such an approach would appear to make it extremely difficult for these banks to ascertain to what extent they may or may not be complying with their capital requirements. The harmonisation of RWA’s will also prejudice certain banks given the differences in balance sheet size of these banks."

One advisor told the Financial Times that even four years was likely to be too short a time for such a complex project.

"There are so many models and many of them are complicated," the advisor said. The advisor  also told the Financial Times that firms should be careful because the ECB gives financial penalties for missed deadlines.

The tender document calls for suppliers with expertise in modelling, training, planning, project management, quality assurance and analysis. Suppliers should also have experience of at least 20 projects for banks in similar fields since 2012, the tender document said, according to the Financial Times.

The ECB’s in-depth review published in October reported a capital shortfall of €25bn in 25 banks, based on banks’ positions at the end of 2013. By the time of the report, however, 12 of the banks had covered their shortfall, and the others were given nine months to do so.