Authors: Andreas Andritsos, Evangelos Manouvelos

Title: ECB’s Supervision and Evaluation: Is the Internal Capital Adequacy Assessment Process (ICAAP) adequate enough?

Abstract

According to ECB credit institutions must have credible, effective and comprehensive strategies and procedures in place to assess and maintain, on an ongoing basis, the amount, composition and allocation of own funds which they deem appropriate to meet the nature and level of risks to which they are exposed or may take over (internal capital). In order to succeed that goal the institution must implement the ICAAP process which is substantial for the determination of capital requirements.

In this paper we try to examine areas that are used under the ICAAP assessment and perspective. We’d like to mention the risks that the institution must consider, and some key parameters that must be adopted in order to avoid capital risks. We look into the SREP results for 2017, examining measures and risks that the institutions have taken into consideration during 2017, and finally the four elements which composed the SREP methodology, ensuring a sound risk assessment. Is ICAAP a tool that can be used by ECB to adequately address supervisory issues?

Finally we record SSM supervisory priorities for 2018 in four areas (business models, credit risk, risk management and activities comprising multiple risk dimensions) and assess how these priorities could be addressed through the ICAAP process.