On Tuesday, the European Central Bank (ECB) announced that it had decided to increase capital reserves for 20 banks after assessing that the banks did not set aside enough cash to cover unpaid loans. This became a major concern after the cost of borrowing increased significantly.
This move is part of the ECB's efforts, which will continue into next year. This is to ensure banks are prepared to deal with payment delays and tighter liquidity after interest rate increases. In its annual assessment of the European zone's banking sector, the ECB said it had provided additional capital to 20 large banks to cover bad loans.
The ECB also imposed capital charges on the eight banks concerned. In addition, the ECB also gave additional capital requirements to six banks, and gave "guidance" to seven more banks.
"We will focus on persistent weaknesses, in risk management, governance and internal control," said chief supervisor Andrea Enria.
In 2024, the ECB will focus its attention on credit and liquidity risk.
"The higher interest rate environment is expected to increase the volatility of some funding sources and the cost of bank funding in the medium term, when large amounts of central bank funding will be replaced," the ECB said.
