ECB to amend bank capital demands to prepare for stress test

European Central Bank has announced that it will be changing the capital demands by segmenting the lenders into four different categories using their capital buffer or Pillar 2 Guidance as key criteria.

Europe’s apex bank is preparing the banks for the stress test scheduled to hold sometime this month. But the recent changes to regulations have caused a lot of uncertainty among lenders.

A spokesperson of the ECB said: “We received a lot of questions from banks because the adverse scenario of stress tests this year is very heavy and challenging for banks.”

The apex bank said it will be eliminating the minimum “floor” it previously put in place to secure lenders in the event of losses, adding that banks can reach into capital buffers until 2022 to curb losses and support active lending while the pandemic persists.