Banks, EU – Baltic States, Financial Services, Latvia, Legislation

The banks will undergo risk assessment, asset quality review and stress tests.

The list of banks subject to the assessment also includes Latvia's largest banks (in terms of assets) Swedbank, SEB banka and ABLV Bank.

The assessment is an important step in the preparation of the single supervisory mechanism and, more generally, towards greater transparency of the banks' balance sheets and consistency of supervisory practices in Europe.

The assessment will commence in November 2013 and will take twelve months to complete. It will be carried out in collaboration with the national competent authorities (NCAs) of the member states that participate in the single supervisory mechanism, and will be supported by independent third parties at all levels at the ECB and at the national competent authorities.

The exercise has three main goals: transparency – to enhance the quality of information available on the condition of banks; repair – to identify and implement necessary corrective actions, if and where needed; and confidence building – to assure all stakeholders that banks are fundamentally sound and trustworthy.

The assessment will consist of three elements: a supervisory risk assessment to review, quantitatively and qualitatively, key risks, including liquidity, leverage and funding; an asset quality review (AQR) to enhance the transparency of bank exposures by reviewing the quality of banks' assets, including the adequacy of asset and collateral valuation and related provisions; and a stress test to examine the resilience of banks' balance sheet to stress scenarios. These three elements are closely interlinked. The assessment will be based on a capital benchmark of 8 percent Common Equity Tier 1, drawing on the definition of the Capital Requirements Directive IV/Capital Requirements Regulation, including transitional arrangements, for both the AQR and the baseline stress test scenario. The details concerning the stress test will be announced at a later stage, in coordination with the European Banking Authority.

The comprehensive assessment will conclude with an aggregate disclosure of the outcomes, at country and bank level, together with any recommendations for supervisory measures. This comprehensive outcome will be published prior to the ECB assuming its supervisory role in November 2014, and will include the findings of the three pillars of the comprehensive assessment.