Audit finds holes in ECB’s management of bank credit risk

European Central Bank supervisors are often too lenient with banks in how they manage credit risk, especially in the case of the worst performers, the European Court of Auditors (ECA) said on Friday in a report that highlighted a number of shortcomings.

The ECB supervises just over a hundred of the euro zone’s biggest banks and has long complained that lenders are not taking the risk of soured debt seriously, failing to recognise problems or set aside provisions.

But Friday’s report from the European Union’s external auditor s  buggests the problem is more systemic than a lack of compliance by banks.

The report concludes that the ECB applies its rules inconsistently, exercises leniency towards the highest-risk lenders, takes too long to make capital decisions, and does not always have adequate supervisory staff.

“The ECB did not impose proportionally higher (capital) requirements when banks faced higher risks, meaning that risks are not clearly linked to the requirement imposed,” the ECA said.

This report’s information was first seen on REUTERS; to read more, click this link.