The European Central Bank should stop relying on banks' self-assessments when setting capital requirements and do its own homework instead, independent experts said on Monday.
The ECB has been blending its analysis with the banks' own to come up with capital requirements.
"Banks’ self-evaluations are often subject to biases that may become even more significant when ICAAPs play a prominent role in the determination of P2R ," the experts said in the report, referring to the second of three tiers of bank capital requirements set under global rules.They told the ECB to change the way it sets capital demands and focus "on specific risks requiring additional capital coverage, while significantly limiting the use of ICAAPs".
Fellow ECB supervisor Elizabeth McCaul welcomed a recommendation to use more "qualitative measures" with banks, which she said could include "limitations on business activity, demanding changes in the board and management, and monetary sanctions".
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