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2 0 1 2 a n n u a l r e p o r t
This recommendation, finally published in De-
cember 2011, required competent authorities
to ensure participating EU banks raised their
Core Tier 1 (CT1) ratio to 9 %, after setting an
additional buffer against sovereign risk hold-
ings, as part of a suite of policy measures to
restore confidence in the EU banking sector.
The objective was to ensure sufficient capital
against unexpected losses if the economic
situation deteriorated further.
The EBA identified a shortfall for 27 banks of
EUR 76 billion, to be addressed by end-June
2012 via an increase of the capital elements
of the highest quality and via a limited set of
actions aimed at reducing risk-weighted as-
sets (RWAs), without impacting lending into
the real economy. Comprehensive measures
were subsequently implemented by banks to
comply with the recommendation.
The capital exercise, which triggered a deep
restructuring process for four of the banks
with an initial shortfall, resulted in an aggre-
gate EUR 115.7 billion recapitalisation for the
27 banks after the implementation of their re-
spective capital plans.
Compliance with the recommendation has
been achieved mainly via new capital meas-
ures (retained earnings, new equity and liabil-
ity management) and, to a lesser extent, by
releasing capital through measures impacting
This exercise was a necessary step on the
road to repairing EU banks’ balance sheets,
and was one of a series of coordinated policy
measures agreed by the European Council in
October 2011. Although the external environ-
ment remains challenging, the recapitalisa-
tion contributed to strengthening the capital
base of the banking system and has put banks
in a stronger position to continue lending to the
real economy. Overall, taking into account the
capital strengthening of the remaining banks
in the sample, including capital impact of RWA
measures, and the capital injection already re-
alised in Greek and Spanish banks involved in
the exercise, the banks’ capital position was
stronger by more than EUR 200 billion in June
2012 compared to December 2011.
The vast majority of the banks involved in the
EBA capital exercise showed a CT1, as of end
of June 2012, above the 9 % after accounting
for the sovereign buffer.
Going forward, the EBA will continue to moni-
tor banks’ capital levels. The implementation
of the CRD IV/CRR framework will change
the legal setting for assessing capital levels.
To that end, as the final CRD IV/CRR package
enters into force, the EBA decided, in October
2012, to issue a new recommendation, replac-
ing the requirement for a 9 % CT1 ratio with
a capital preservation requirement. Under
this new requirement, competent authorities
should ensure that banks have credible capital
plans for converging towards the new CRD IV/
CRR standards and, in the transitional period,
maintain a nominal level of CT1 capital corres­
ponding to 9 % of risk-weighted assets as at
June 2012 (’the nominal buffer’).
b. Colleges role in the recapitalisation and
restoration of order
Colleges of supervisors played an integral role
in the fulfilment of the EBA’s capital exercise
(see above). In particular, in the context of
implementation of the capital plans colleges
were necessary to ensure a coherent ap-
proach of the plethora of national measures
introduced. The relevant banks submitted
their capital plans to NSAs and, in coordina-
tion with the EBA, these plans were discussed
in supervisory colleges, where host supervi-
sors had the opportunity to raise any concerns
on those measures having an impact on their
own jurisdictions and credit markets. Colleges
provided an open and secure forum for infor-
mation exchange whereby all relevant host
authorities were kept up to date, with the con-
solidating supervisor leading on interaction
with the bank. The colleges also played an im-
portant role in facilitating the coordination of
the final communication phase of the exercise.
Colleges have also played a vital role during
the crisis in ensuring adequate information
flows about both emergency situations and
relevant supervisory responses to bring a de-
gree of coordination to what could otherwise
be a disorderly series of national measures. By
facilitating a forum for confidential and secure
information exchange, colleges of supervisors
have helped improve coordination and informa-
tion exchange in stressed situations. In some
circumstances improvements in reaching this
stage are necessary, for example there have
been instances where the EBA has intervened
to ensure colleges play that role and, where
colleges have failed, competent authorities
have sought guidance from the EBA.