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E U R O P E A N B A N K I N G A U T H O R I T Y
6
Foreword by the
Chairperson
The
EBA 2012 annual report
portrays the work of the European Banking
Authority in its second year of activity. It has been another very chal-
lenging year, still characterised by difficult market conditions for Euro­
pean banks and a complex process of institutional and regulatory re-
pair. But much progress has been made, and I believe we can be proud
of the role played by the EBA in shaping the environment for a more
stable banking and financial sector in the European Union.
The first priority we faced was to significantly strengthen the capital
­po­sition of EU banks and dispel concerns on their ability to withstand fur-
ther shocks. Market concerns were driving a funding squeeze for Euro­
pean banks, which was adversely impacting the banks’ lending capacity
and the recovery of the European economy. We focused our attention
on the capital of the highest quality (Core Tier 1 — CT1) and requested
a buffer well above the minimum requirements, even with reference to
the stronger benchmarks foreseen by the G20 agreements for the first
years of implementation of the so-called Basel III standards. We also
asked for a conservative treatment of sovereign exposures, which was
in our view essential to alleviate the perverse interconnection between
the banks and their sovereigns and ensure additional safety for the
banks of the countries under stress. The Ecofin Council strongly sup-
ported the EBA recommendation and requested that the necessary bal-
ance sheet adjustment were not achieved through a pro-cyclical reduc-
tion in lending to the economy. Another important element of the puzzle
was to ensure that this complex adjustment was conducted through
capital plans thoroughly discussed and agreed within colleges of super-
visors, so as to avoid a home bias in the deleveraging process. Looking
backwards, I believe we achieved all the objectives we had set: in 2012
banks improved their capital positions by more than EUR 200 billion
and are now fairly close to fulfilling the final Basel III requirements for
CT1; the shortfall we identified was almost entirely (96 %) covered with
direct capital actions, while reduction in lending was recognised only
in a few, marginal cases in which specific requirements were imposed
by national and European authorities; the whole process was managed
with the active involvement of colleges of supervisors; the banks that
didn’t manage to achieve the targets were supported by government
backstops or put under restructuring.
It is important that supervisory pressure on balance sheet repair re-
mains high. Asset quality has been deteriorating and in-depth reviews
conducted by supervisors have been essential in ensuring an adequate
recognition of losses. Further efforts are needed to address remain-
ing pockets of vulnerabilities and dispel market concerns on asset
quality. The work initiated by the EBA to reach consistency in the cal-
culation of risk-weighted assets is another important element in the
action for strengthening the confidence in European banks’ balance
sheets. Banks should prepare and implement plans for further capital
strengthening, in order to comply with the internationally agreed stand-
ards, also under stressed conditions. We continue emphasising the role
colleges of supervisors should play in smoothly driving this adjustment
process, and the EBA staff is fulfilling an important task in coordinating
the supervisory activities within the colleges of the 40 largest EU cross-
border banks. Such coordination has proved crucial especially against
the backdrop of risks of fragmentation of the EU single market trig-
gered by the deterioration of the financial crisis.
Andrea Enria