Stressing the European Banks: An Evaluation of the Comprehensive Assessment

30 Pages Posted: 2 Jul 2015

See all articles by Giovanna Paladino

Giovanna Paladino

IntesaSanpaolo; LUISS Economics Department

Zeno Rotondi

UNICREDIT; LUISS Guido Carli University

Date Written: July 1, 2015

Abstract

We use the results of the ECB's Comprehensive Assessment to evaluate the importance of bank business model on risk assessment and the persuasive effectiveness of different supervisory styles on banks’ recapitalization. Our analysis reveals inconsistencies in the information content provided by the various regulatory measures used for assessing bank stability. Moreover, opposite to the RWA density and CET1 ratio, the leverage ratio provides assessments on business models closer to a market-based measure of bank risk. We also find that the effectiveness of the supervisory action depends on the specific type of supervisory model. In particular, countries adopting the hybrid model are more severe and effective in persuading banks to recapitalize preventively. Differently, countries adopting the integrated and the sectorial model seem less prone or able to be effective in their requests.

Keywords: macroprudential regulation, stress test, systemic risk, risk-weighted assets

JEL Classification: G28, G21, G11, G01

Suggested Citation

Paladino, Giovanna and Rotondi, Zeno, Stressing the European Banks: An Evaluation of the Comprehensive Assessment (July 1, 2015). Available at SSRN: https://ssrn.com/abstract=2625502 or http://dx.doi.org/10.2139/ssrn.2625502

Giovanna Paladino

IntesaSanpaolo ( email )

Piazza San Carlo
Torino, 10121
Italy

LUISS Economics Department ( email )

Viale di Villa Massimo, 57
Rome, 00161
Italy

Zeno Rotondi (Contact Author)

UNICREDIT ( email )

VIA SPECCHI 16
ROME, 00186
Italy

HOME PAGE: http://docenti.luiss.it/rotondi

LUISS Guido Carli University ( email )

Via O. Tommasini 1
Rome, Roma 00100
Italy

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