Mr Luis M Linde, Governor of the Bank of Spain, argued that the Spanish financial system had undergone intense restructuring and recapitalisation, as well as a significant consolidation process and he was thus confident that Spanish banks were prepared for the AQR and stress tests.
The entry into force of the SSM will really mark a major milestone on the road to the completion of the Economic and Monetary Union and to the construction of Europe. It will contribute to fostering financial integration and to breaking the loop between banking and sovereign risk: In sum, it will strengthen financial stability in Europe.
In the run-up to assuming supervisory functions, the ECB and the National Competent Authorities are conducting together a comprehensive assessment, to check the soundness of the 128 banks that will be under the direct supervision of the ECB. The ultimate aim of this exercise, which began in October 2013, is to build confidence as to the soundness of the banks under the SSM by two means: transparency and, if needed, recapitalisation.
As it is well known, the assessment consists of two pillars: an asset quality review and a stress test.
The first pillar, the Asset Quality Review, began in February and will conclude in August. It examines the asset side of bank balance sheets as of 31 December 2013.
The second pillar, the stress test, began in May and will evaluate the ability to maintain adequate solvency levels under stress, using the methodology agreed by the ECB and the European Banking Authority. This process will conclude in September and the publication of the results of the whole exercise is expected in late October. After this disclosure, those banks facing a capital shortfall will have to submit their recapitalisation plans to the ECB.
I would like to say that, as we all know, the Spanish financial system has undergone intense restructuring and recapitalisation, as well as a significant consolidation process. I am confident that Spanish banks are prepared for this rigorous exercise.
Setting up the Single Supervisory Mechanism and making it operational is not going to be a simple task. Both from the procedural and organisational standpoints, it will be a complex process, requiring great effort, and will be a major responsibility for those who take on the leadership of this new European Union-wide institution.
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