Giulia Mele

Nata a Rieti il 7 maggio 1989. Consegue la maturità classica nel 2008 presso il Liceo M.Terenzio Varrone di Rieti con il massimo dei voti. Nel 2013 si laurea in giurisprudenza presso l’università LUISS Guido Carli con la votazione di 110/110 e lode con menzione speciale, con tesi in diritto dei mercati finanziari. Dal novembre dello stesso anno è iscritta nel registro dei praticanti dell’ordine degli avvocati di Roma.

Mar 302015

Pubblicato in G.U. il nuovo Regolamento MEF sugli OICR.

In data 20 marzo 2015 è stato pubblicato in Gazzetta Ufficiale il Decreto del Ministero dell’Economia e delle Finanze 5 marzo 2015, n. 30, recante Regolamento attuativo dell’articolo 39 del Testo Unico della Finanza, concernente la determinazione dei criteri generali cui devono uniformarsi gli OICR italiani. Il regolamento entrerà in vigore a partire dal 3 aprile 2015.

Mar 302015

È stato pubblicato sulla gazzetta ufficiale dell’UE (GUUE) il Regolamento delegato(UE) 2015/514avente ad oggetto leinformazioni da fornireda parte delle autoritàcompetentiall’ESMA  ai sensi dell’articolo 67(3) delladirettiva 2011/61 / UE del Parlamentoeuropeo e delConsiglio(AIFMD).

Il regolamento entrain vigore il16 aprile 2015.

Mar 102015

The European System of Financial Supervision consists of three supervisory authorities: the National Supervisory Authorities (NSA), the European Systemic Risk Board (ERSB) and the European Insurance and Occupational Pensions Authority (EIOPA). The latter was established on 1 January 2011 to protect the insurance policyholders as well as the members and beneficiaries of the pension schemes and to support the stability of the financial system as well as the transparency of markets and the financial products. Over the current year 2015, EIOPA has to face a budget reduction of -7.6%, which is putting at risk the effective delivery of its core responsibilities. In order to respond to these cuts, EIOPA has been forced to postpone or cancel some ongoing projects: work streams in the areas of Financial Stability and Consumer Protection have been already reprioritized and, even though it remains the highest priority, Solvency II will be affected as well (the training program for supervisors will be reduced by 20% and production of the IT supervisory toolkit related to the XBRL reporting has been already cancelled).

 Regardless of these cuts, EIOPA keeps on working to ensure a strong and consistent insurance supervision in Europe, for the sake of financial stability and consumer protection.

 For instance, on the 28th of January 2015, the authority published an Opinion concerning consumers protection issue related to insurance and pensions sales via the Internet: EIOPA recommended that National Competent Authorities (NCAs) should ensure online distributions to comply with a duty of advice and insurers to be provided with appropriate information, like disclosures documents, details on the distributor’s customer service and the level of the guarantees provided. Although consumers could benefit from the online distribution thanks to the abundance of information that could be found, behavioral economics has shown that in general most people do not conduct sufficient researches and this turns out in buying unsuitable products or choosing them based only on the offered price, regardless of the quality or of the guarantees; furthermore, sometime various options have to be tick on/off by the consumers, and the default configuration could lead them to enter unsolicited contracts. Lastly it is difficult to monitor emerging digital distribution channels and that’s why EIOPA warned the NCAs to increase their level of awareness.

 Moving on to the sake of financial stability, it’s worthy to recall that the authority published on the 30th of January 2015 the statistical database for occupational pension in the European Economic Area, which is an important data source to identify trends, potential risks and vulnerabilities at an early stage. Up to now, the database includes statistics from 2004 to 2013 provided by 21 jurisdictions and it will be updated on a yearly basis.

 Then, with the purpose of ensuring a common and consistent application of union law and with the objective of establishing efficient and effective supervisory practices, on the 2nd of February 2015, EIOPA issued the first set of its Solvency II Guidelines in the official languages of the European union. The Guidelines aim to clarify the Delegated Acts dated 10 October 2014 and are addressed to National Competent Authorities and Financial Institutions; the formers have to confirm whether they will comply with the Guidelines within two months of the issuance date, as stated by Article 16 (3) of the EIOPA Regulation. Among others aspects, the Guidelines cover the following:

  • valuation of Technical provisions and Contract Boundaries
  • classification of Own Funds, ancillary Own Funds, Ring Fenced Funds
  • look-through approach
  • basis risk, treatment of market and counterparty risk, application of life underwriting risks, health cat risk
  • Loss Absorbing Capacity of Technical Provisions and deferred taxes
  • Undertaking Specific Parameters and application of Internal Models
  • operational functioning of Colleges of Supervisors and supervisory review process

 With respect to the Guidelines on the System of Governance and the Own Risk and Solvency Assessment (ORSA), EIOPA intends to issue them in all the official languages in April 2015 (final reports on the public consultation was published on the 3rd of February 2015); they will become applicable on the 1st of January 2016. The Guidelines on the System of Governance will set out the requirements for the management of undertakings, while the Guidelines on the ORSA will be focused on a better understanding of the undertaking’s solvency needs and capital allocation, as well as on the interrelation between risk and capital management in a forward looking perspective.

 Furthermore, following its previous work on the regulatory treatment of long term investments, EIOPA has started a new work stream on investments in infrastructure projects by insurers, which should finally benefit policyholders and the whole European economy. The main purpose is to develop a definition of investments able to offer predictable long term cash flows, embedding a risk that can be properly identified and managed by insurers. EIOPA intends also to analyze the treatment of the identified investments within Solvency II, focusing on their specific risk profile. Believing on the importance of relying on the knowledge and experience of the stakeholders, the authority has organized a roundtable with the goal of exchange views among high level representatives from infrastructure industry, insurance industry, asset management, public authorities and academia. The event took place on the 27th of February 2015, and on the same date EIOPA launched a web section dedicated to this topic. The authority envisages giving its recommendations to the European Commission in summer 2015, with the submission of the Technical Advice. EIOPA act in fact as an independent advisory body to the European Commission, the European Parliament and the Council of the European Union.

 Finally, on the 28th of February 2015, the authority also published the Solvency II relevant risk free interest rate term structures to allow insurance companies to prepare for the start of the new supervisory system in 2016. Along with the risk free interest rates term structures with and without Volatility Adjustment (VA), EIOPA published the effective values of VAs and the fundamental spread to be applied for the calculation of the matching adjustment. All the assumptions an methodologies adopted to calculate these values have been published as well. The reference date of the published term structures was 31 December 2014; while term structures at 31 January and 28 February 2015 were be released on the 6th of March 2015. Being a key input for the assessment of the solvency and financial position of the insurance companies, the relevant risk free interest rate term structure will be updated on a monthly basis. The use of uniform conditions to calculate Technical Provisions ensures that Solvency II is implemented in a consistent way throughout Europe, which in turn facilitated the valuation of undertakings and the work of supervisors and ultimately benefits insurance policyholders too. The risk free rates are indeed applied to discount insurance obligations in a way that Technical Provisions reflect the amount to be paid by insurance undertakings if they had to transfer their obligations to another insurance undertaking.

 EIOPA also monitors the improvements made by the insurance sectors in term of Solvency II and assesses these twice a year against detailed criteria based on the EIOPA Action Plan for colleges. Colleges are multilateral groups of relevant supervisors formed to ensure a consistent supervision of financial institutions operating across borders. Currently there are 92 insurance groups which are active cross border and represented more than 1 trillion euro premium income during 2014. 77 of them are closely monitored by EIOPA, while towards the remaining 15 colleges the authority applies a proportionate approach. On the 20th of February 2015 EIOPA published its “Year End report on functioning of colleges and accomplishments of the action plan 2014”; the 2014 Action Plan was focused on the development of a consistent risk based supervision and on the Solvency II preparatory guidelines, here are the main findings:

  • during 2014 a progress and increase in the information exchange have been observed: almost all the colleges exchange information on a regular basis (74% of them on a yearly basis); and more than 70% in a structured way. The expectation is that with Solvency II and with the introduction of the single reporting templates and the Guidelines, the exchange of information will take place on structured basis with increased frequency; but on the other hand, professional secrecy issues with respect to the not EEA countries will keep on slowing progresses on this side.
  • The vast majority of the colleges has a shared view of risk at group level, excellent examples of approaches to form a shared view have been observed in 6 cases, which will be published as Practical Solutions and Examples on the restricted area of EIOPA’s website.
  • 23 groups are preparing an Internal Model (IM) application: except for 1 case, the work planning for the IM pre-application phase has improved significantly during the second half of 2014. Although the colleges with IM are overall very active in the process, some of them still lack a detailed work planning and tracking for the application phase and some others are facing capacity problems in relation to the Solvency II implementation (because of lack of people there is neither always continuity nor a proper hand over in IM experts present at college events on IM).
  • Although 60 colleges have had a discussion on the implementation of the preparatory guidelines and 46 have agreed on the implications for their work planning, in the majority of the ones where a discussion took place no feedback has been given to the insurance group. The Solvency II preparatory guidelines will require significant further attention from both colleges and insurance groups.

Mar 102015

La metodologia di calcolo dei requisiti patrimoniali per le cartolarizzazioni è oggetto di una integrale revisione da parte del Comitato di Basilea sia per le posizioni di banking book sia per quelle di trading book. Le proposte del Regulator contengono numerosi elementi di novità rispetto all’attuale normativa, e pertanto richiedono significativi interventi di adeguamento da parte delle banche. Il presente documento fornisce una sintesi della normativa in corso di definizione da parte del Comitato di Basilea per il trading book e commenta alcune delle novità maggiormente rilevanti per l’industria bancaria.

The Fundamental Review of the Trading Book

 Nel Dicembre 2014 il Comitato di Basilea ha pubblicato il terzo Consultative Document relativo alla “Fundamental review of the trading book”, con l’obiettivo di definire, entro la fine del 2015, la nuova disciplina dei requisiti patrimoniali per i rischi di mercato.

Con l’entrata in vigore della nuova normativa, che potrebbe avvenire nel 2017, i requisiti patrimoniali per le cartolarizzazioni potranno essere calcolati esclusivamente con il nuovo approccio standard, in quanto il Regulator ritiene che i modelli interni non siano adeguati a cogliere tutti i rischi sottostanti tale tipologia di esposizioni.

Un portafoglio di cartolarizzazioni in euro caratterizzato dall’assenza di rischi di tipo FX, Equity e Commodity, costituito esclusivamente da strumenti non opzionali, e non facente parte del correlation trading portfolio, contribuisce al requisito complessivo della banca in termini di:    

  • Contributo al requisito patrimoniale per General Interest Rate Risk, per la sola componente delta, legato al fatto che le cartolarizzazioni possono incidere sulle sensitivity (PV01) del portafoglio di trading a uno o più vertici delle curve OIS e XIBOR;
  • Requisito patrimoniale per Credit Spread Risk (securitisations), per la sola componente delta, ottenuto a partire dalle sensitivity (CS01) alle curve di spread associate alle diverse tranche;
  • Requisito patrimoniale per Default Risk (securitisations), da calcolare con metodologia analoga rispetto alle posizioni di Banking Book;

In dettaglio, il requisito patrimoniale per la componente delta del General Interest Rate Risk si basa sulle sensitivity del portafoglio ai vertici delle curve OIS e Xibor nelle diverse valute e richiede i seguenti passaggi:

a) Calcolare, per ciascuna curva, la sensitivity del portafoglio ai vertici riportati nella tabella sottostante e moltiplicare ogni sensitivity per il relativo risk weight, in modo da ottenere una Weighted Sensitivity (WS);


Tabella 1: GIR Risk – risk weights per vertex

b) Aggregare le Weighted Sensitivities all’interno dello stesso risk bucket (currency) con la seguente formula


dove il parametro 


è determinato sulla base delle seguenti matrici di correlazione, differenziate in base al segno delle sensitivity o delle esposizioni al rischio.


Per aggregare le sensitivity relative a curve diverse (ad es. OIS e EURIBOR 3M) è previsto un fattore di aggiustamento per il basis risk; le correlazioni riportate devono essere scalate per un fattore pari a 1+ x o (1-x), a seconda se le sensitivity hanno lo stesso segno o segno diverso, dove x è posto pari a 10 basis point;

c) aggregare i risultati ottenuti tra le diverse valute tramite la formula







sono pari, rispettivamente, alla somma delle Weighted Sensitivities dei risk buckets 


è pari a 0,5.

Gli RWA per la componente delta del Credit Spread Risk (securitisations) sono calcolati secondo una procedura che prevede di:

a) Calcolare le sensitivity ai vertici a 1, 2, 3, 5 e 10 anni delle curve di spread associate agli strumenti in portafoglio, allocarle ai risk buckets della tabella sottostante e moltiplicarle per il corrispondente risk weight, in modo da ottenere   le Weighted Sensitivities (WS);


Tabella 4: CS Risk – risk bucket e relativi risk weight (in bp)

 b) Aggregare le singole sensitivity ponderate (WS) all’interno di ciascun Risk Bucket tramite la seguente formula


Per la determinazione del coefficiente di correlazione 


si utilizza la seguente matrice:


Tabella 5: CS Risk – matrice di correlazione

In caso di curve associate a tipologie diverse di strumenti (ad es. bond e CDS) è prevista la stessa correzione per il basis risk descritta per il GIRR;

c) Aggregare le sensitivity correlate all’interno dei singoli bucket con tutti i bucket esposti al punto a) (per le cartolarizzazioni non viene riconosciuta alcuna correlazione in questa fase).


Con riferimento al Default Risk, le guidelines fornite dal Comitato di Basilea fanno rimando alla metodologia definita per il calcolo del requisito patrimoniale delle posizioni incluse nel Banking Book per la determinazione dei risk weight. Il processo di calcolo del capital charge presenta tuttavia l’hedging delle posizioni quale elemento aggiuntivo. Nel dettaglio il capital charge è calcolato per singola asset class (ad es. Credit Card ABS, RMBS/CMBS, ecc.) come segue:


dove RWlong e RW short rappresentano gli RWA delle posizioni lunghe calcolati con i risk weight previsti per il Banking Book;  Wts rappresenta l’hedge benefit discountcalcolato come:


Con riferimento all’hedging delle posizioni verso la cartolarizzazione, l’applicazione del parametro Wts  alle posizioni nette corte è vincolato al rispetto dei seguenti vincoli: l’hedging è previsto solo all’interno della stessa area geografica (ad es. Nord America vs Europa), ad eccezione di titoli con esposizioni sottostanti verso corporate (ad es. CMBS, CLO SME, ecc.); non è previsto hedging tra diverse asset class (ad es. ABS vs RMBS); è previsto l’hedging tra posizioni con esposizioni sottostanti verso corporate, anche tra regioni diverse ma all’interno della stessa tranche; è previsto hedging tra tranche diverse, purché siano rispettati i requisiti di cui sopra.

Commenti al nuovo framework

Trading Book vs Banking Book

La futura metodologia di calcolo degli RWA per le posizioni del Trading Book, che prevede la somma dei requisiti patrimoniali per Default Risk, General Interest Rate Risk e Credit Spread Risk, determina assorbimenti di capitale potenzialmente molto superiori rispetto alle posizioni incluse nel Banking Book soggette al solo Default Risk.

Tale effetto può essere attenuato in quanto, nel calcolo del requisito per il Default Risk nel Trading Book, è prevista la possibilità di hedging tra posizioni lunghe e corte verso cartolarizzazioni appartenenti alla stessa asset class, in presenza delle condizioni elencate in precedenza.

La presenza di posizioni corte nel portafoglio di trading consente di ridurre anche l’assorbimento patrimoniale per il Credit Spread Risk, qualora almeno l’80% del collateral sia costituito dagli stessi sottostanti.

Sulla base delle considerazioni precedenti, è teoricamente possibile ottenere benefici in termini di pricing acquistando cartolarizzazioni classificate nel Trading Book dalle controparti e collocandole, per finalità di copertura o per finalità gestionali interne, nel Banking Book.

Calibrazione degli shock per il Credit Spread Risk

Gli scenari proposti dal Comitato di Basilea per le diverse asset class paiono troppo penalizzanti e non sempre coerenti con l’evidenza storica del mercato europeo e italiano in particolare. Si presentano, infatti, numerosi casi di requisiti patrimoniali superiori all’esposizione soggetta a rischio (RWA * 8% > EAD), a fronte dei quali sarebbe necessaria quantomeno la previsione di un cap pari al valore della posizione.

Per alcune tipologie di titoli il solo requisito per il Credit Spread Risk può risultare superiore all’esposizione stessa; si osservi, ad esempio, la classe Residual, – nella quale rientrerebbero i CLO e tutti i prestiti alle piccole e medie imprese, indipendentemente dal rating – la cui sensitivity è sottoposta ad un risk weight di 5000 basis points.

Per tali motivi, anche in presenza di un cap pari al valore dell’esposizione, gli strumenti con risk weight complessivo pari al 1250% potrebbero arrivare fino alla classe di rating BB, con un conseguente appiattimento del trattamento regolamentare delle posizioni in portafoglio.

E’ opportuno osservare, infine, che un aumento dei requisiti patrimoniali, potenzialmente non in linea con l’effettiva rischiosità dei titoli in portafoglio e con l’evidenza delle perdite registrate storicamente, potrebbe penalizzare il mercato delle cartolarizzazioni, la cui ripresa è stata recentemente auspicata dalla BCE nel working paper “The case for a better functioning of the securitisation market in the European Union” (pubblicato congiuntamente con la Bank of England nel maggio 2014).

Mar 012015

L’EBA ha pubblicato un report indirizzato alla Commissione Europea in materia di calcolo dei requisiti dei fondi propri per il rischio di credit valuation adjustment (CVA). Il report, basato su un campione di 32 banche di 11 giurisdizioni diverse, ha evidenziato la rilevanza dei rischi attualmente non coperti dalla normativa europea a causa di alcune esenzioni previste nel Capital Requirements Regulation (CRR).


Comunicato stampa

Report sul CVA

Parere sul rischio

Mar 012015

La Financial Conduct Authority (FCA) ha avviato un occasional paper sulla vulnerabilità dei consumatori. Tale documento si pone l’obiettivo di diffondere la conoscenza e stimolare interesse e dibattito sul tema trattato e fornire un aiuto pratico alle imprese nello sviluppare ed adottare una strategia in merito. Esso include un Practitioners’ Pack che contiene indicazioni per imprese finalizzate ad ottenere maggiori risultati e sviluppare servizi più efficienti per i consumatori vulnerabili.


Comunicato stampa

Occasional paper

Practitioners’ Pack

Vulnerability exposed: The consumer experience of vulnerability in financial services

Feb 272015

La Prudential Regulation Authority (PRA) ha stabilito i criteri per valutare le responsabilità dei dirigenti di banche ed imprese di investimento  nel caso in cui non prendano provvedimenti per prevenire o interrompere le violazioni delle disposizioni prudenziali nelle loro aree di competenza.

Comunicato stampa

Consultation paper sulle segnalazioni, che si chiuderà il 22 maggio 2015 (CP6/15)

Consultation paper sull’atteggiamento nei confronti di amministratori non esecutivi delle banche e delle imprese di cui al Solvency II che si chiuderà il 27 aprile 2015 (CP7/15)


Feb 222015

When dealing with the Comprehensive Assessment (CA) the key question is: was the CA really comprehensive? But why this question is so important?

In our precedent columns on this site, evaluating the determinants of the shortfall of the CA, we have showed that there is some evidence of double standards: a different approach with respect to credit activity and financial assets, a different approach with respect to core and non-core countries, a penalization of non diversification-home bias effect, the fact that national discretion has played a role (Barucci, Baviera and Milani, 2015a, 2015b). One can discuss at length whether such double standards should be there and the possible rationale, one can also claim that an analysis of the adjustments (instead of the shortfall) may contain more (or complementary) information about the assessment made by the ECB. However, having a non-comprehensive CA can be simply dangerous; in this contribution we investigate this point.

An instance could clarify this point which is crucial whenever one analyses banking regulation issues. Let us suppose that regulator focuses just on one class of risk (e.g. credit exposure) neglecting the others when analyzing two banks (A & B) with the same business structure; let us also imagine that bank A is more clever in balance sheet management techniques allowed by the most advanced financial engineering tools (securitization without a real risk transfer to third parties, off balance sheet vehicles, level 3 assets, etc..). Clearly, in such a case bank A could pass more easily than bank B any “exam” from the banking supervision authority: this could be a tremendous incentive for regulatory arbitrage increasing financial products and balance sheet complexity.

One of the main objectives of CA is to enhance transparency (European Central Bank, 2014a). We observe two main limits in the exercise, which are related to the use of an incomplete information set and to some features in the methodology that has been followed by the authority.

With respect to the first issue, two key elements, probably not adequately analyzed in the CA, are level 3 assets and off-balance sheet items. As it is well known, both elements have played a crucial role in the current financial crisis.

Level 3 assets should have been analyzed in detail during work block 8 in AQR phase 2 (e.g. see figure 1 at page 10 in European Central Bank, 2014b). They amount to €178 billion (bln) for the 130 banks that underwent the AQR. The Fair Value (FV) analysis has divided level 3 assets in two sets: Non-Derivative assets (NDL3) and Derivatives (DL3). The FV of NDL3 for the banks in the panel amounts to €83 bln; the AQR impact has been of €1.4 bln (1.5% of NDL3 assets). ECB declared that “the vast majority of positions in-scope for independent revaluation were priced using cash flow discounting methodologies” and “the main differences in value were identified as a result of an increase in spreads used for cash flow discounting” (see page 97 in European Central Bank, 2014a). On this evaluation approach we observe the following: the valuation revision seems to be inadequate for assets that present scanty liquidity or that could involve rather complex modeling features (e.g. dependency structure for defaults in securitization assets), furthermore impacts on FV seem quite limited considering the characteristics of these assets. The results of the CA are even more astonishing considering the Derivatives’ set: the total impact is about €0.2 bln. If we consider that more than 60% of this amount comes from a single bank (Banque Populaire Caisse d’Epargne) the impact for the other banks is negligible. Let us recall that this set includes the most complicated derivatives with some parameters that cannot be calibrated through market data. For these assets, changing the valuation method can significantly affect the value. The AQR on this points does not appear to be deep enough also considering that some banks in the panel have created and commercialized some of the most complicated derivatives in the market place. Furthermore, we notice that differently from the credit part of the CA, there has been no statistical projection outside the selected portfolio.

Off-balance sheet items are taken into account by the CA only via the Total Assets according to Capital Requirement Regulation (TACRR) and the related leverage ratio. Unfortunately, the interpretation of the regulation does not appear adequate to enhance balance sheet transparency. An example helps to clarify the point. We refer to a bank whose off-balance sheet exposures amount to €200 bln (four times bank’s CET1), the bank’s TACRR is equal to €1440 bln,  the bank’s “Total Assets based on prudential scope consolidation” (the basic measure of total assets in the CA) is €1580 bln. Curiously enough, the measure of total assets including off-balance sheet items is smaller than the basic measure of total assets. Analyzing in detail the bank’s balance sheet, we observe that the decrease is due in particular to nettings for about €400 bln and a set of “adjustments” (e.g. the supervisory volatility adjustments approach) for further €160 bln. This example shows that it is not straightforward to isolate off-balance sheet items in the CA database, however their size is remarkably more significant than the total AQR credit provisions that, for the previously mentioned bank, amounted to €0.2 bln. In conclusion, the off-balance sheet represents an opaque area in the CA. A major UK bank has recently admitted an incorrect CET1 in the ST exercise due to a not-correct inclusion of Deferred Tax Assets (DTA) in the ST, (Fleming and Dunkley, 2014). The rules on DTA are quite simple; if a major bank can impact significantly its results just with improper calculations on DTA, the possibility of miss reporting on complex off-balance sheet structures that involves a significantly larger amount of funds can be really relevant.

From a methodological point of view, CA results are likely to be incomplete on Probabilities of Default (PD) and Losses Given Default (LGD) of banks’ counterparties. It seems that these parameters have been adjusted in the AQR process for the CVA part, but not in the computation of risk weighted assets according to IRB models (the only exception is related to the so called “Join-up”, see also page 35 of European Central Bank, 2014a). The AQR has analyzed in detail the Credit Value Adjustments (CVA) in banks’ balance sheets. On a CVA that amounts to more than €11.4 bln, the impact has resulted in a 27% increase. The most of the impact is related to the PD and the LGD parameters used in the CVA that the supervisor considered to be inadequate (see page 98 of European Central Bank, 2014a). We recall that PD and LGD of banks’ clients are also the main ingredients in IRB models for risk weighted assets computation: there is no rationale for the different approach to these parameters on CVA and IRB computation. This fact also explains why market considers a more reliable measure of risk the leverage ratio with respect to Common Equity Tier1 (CET1) ratio (Barucci, Baviera and Milani, 2014).

As already mentioned, CA appears to be more focused on banks’ credit risk than to market risk: market risk that has been analyzed mainly for the level 3 component and this analysis appears to be (at least) incomplete. Potentially, this fact may negatively affect future transparency and balance sheet strength. As a matter of fact, financial engineering allows modifying one kind of risk into the other via balance sheet management techniques; techniques that generally increase the complexity either within the balance sheet or using complicated off-balance sheet structures. A biased assessment by the supervisor could spread the use of such regulatory arbitrage techniques with very negative drawbacks.

Figure 1. Volatility vs CET1 shortfall/excess


 Source: Barucci, Baviera and Milani (2014).

In a recent analysis, Acharya and Steffen (2014) have questioned the ability of CA in capturing real risks: they find a negative relation between the shortfall and a market risk measure represented by SRISK, the market risk measure that they consider.

In Barucci, Baviera and Milani (2014) we find that at least a part of the risk – perceived by the market – is caught by CA capital deficit, although evaluated on a risk weights-based threshold, since we show a positive relation between capital deficit and volatility. In order to evaluate the capability of CA in capturing bank risk, Barucci, Baviera and Milani (2014) match the capital deficit that emerges from CA scaled by the common equity Tier 1 with a market risk measure represented by the market volatility, restricting their analysis on listed banks. In Figure 1 is reported the capital deficit, taking into account the 5.5% CET1 ratio threshold in the adverse scenario stress test (the capital deficit could be also negative in the case of banks that have a level of CET1 ratio higher than the threshold), in percentage of the CET1 by the end of 2013, and the historical volatility of stock returns, for the 41 listed banks in the EBA sample, for the period January-October 2014. The relation is positive, this fact shows that the CA was able to capture market risk.

Summing up, the most evident consequence of CA is the requirement of capital increases for some banks (mostly concentrated in Italy, Greece and Cyprus) and this fact has strengthened the European banking sector as a whole. However, in our opinion, there are some shadows in the CA exercise since we are in presence of a methodology with several pitfalls.



  • Acharya, Viral and Steffen, Sascha (2014) Benchmarking the European Central Bank’s asset quality review and stress test: a tale of two leverage ratios, VOX, november 2014.
  • Acharya, Viral, Engle, Robert, Richardson, Matthew (2014) Testing macroprudential stress tests: the risk of regulatory risk weights, Journal of Monetary Economics, 65: 36-53.
  • Barucci, Emilio, Baviera, Roberto and Milani, Carlo (2014) Is the Comprehensive Assessment really comprehensive?,
  • Barucci, Emilio, Baviera, Roberto and Milani, Carlo (2015a) What are the lessons of the Comprehensive Assessment? A first evidence,
  • Barucci, Emilio, Baviera, Roberto and Milani, Carlo (2015b) Further evidence on the Comprehensive Assessment ,
  • European Central Bank (2014a), Aggregate report on the comprehensive assessment, available on
  • European Central Bank (2014b), Asset quality review Manual Phase 2.
  • Fleming, Sam and Dunkley, Emma (2014) RBS ordered to call in auditors after admitting stress test error, Financial Times, November 21.