The European Central Bank (ECB) has today published its manual on the methodology for Phase 2 of the AQR. The manual provides guidance for the national competent authorities (NCAs) and their third-party support on carrying out the exercise.
Phase 2 follows the portfolio selection (Phase 1) and will run until August 2014. The AQR process is due for completion in October when the results will be released together with the results of the stress test conducted in cooperation with the European Banking Authority.
The manual includes detailed guidance on:
- procedures for validating data and checking model inputs;
- how to value material exposures and collateral and determine provisioning needs;
- processes for quality assurance and progress tracking to ensure timely completion;
- when to use independent, external valuations for assets;
- the use of industry benchmarks to assess market values.
The AQR is a key component of the comprehensive assessment, which aims to enhance the transparency of the balance sheets of significant banks, trigger balance sheet repair where necessary, and rebuild investor confidence prior to the ECB taking over its supervisory tasks in November 2014.
Below are some key statistics of Phase 2 for the 128 banks subject to the comprehensive assessment.
- Total amount of risk weighted assets (RWA) of the portfolios selected for the review: €3.72 trillion, equivalent to 58% of total RWA across the banks
- Estimated number of credit files reviewed on average per bank: 1,250
(Source: The European Central Bank)
