The review of the quality of bank balance sheets in the euro area by the European Central Bank (ECB) will begin in February. In France, the Prudential Control Authority and resolution (APCR) is already hard at work, and will appeal to outside firms to assist in the execution of the RDI (asset quality review).

The countdown has begun. On 23 October, the European Central Bank (ECB) detailed arrangements for the review of the quality of bank balance sheets that it will address next year , before taking on – in November 2014 – its role as sole supervisor of the European banking sector, the first pillar of the banking union. This “asset quality review” (AQR) will begin in February, but the banks and national supervisors are already hard at work.

Because it is the latter’s task of “preset” bank portfolios will be submitted for consideration of the ECB, as long as it has validated the choice of national supervisors. From November until January, regulators in each country – the Prudential Control Authority and resolution (ACPR) in France – and are working on the risks posed to banks, their corporate loans and individuals, their exposure to sovereign debt, etc.


13 French banks will be submitted to the Health Check of the ECB

“The RDA is an exercise unprecedented in the euro area. This is an issue for banks and for ourselves ” , recognizes Nicolas Peligry, Deputy Director of International Affairs of the young ACPR, created 2010. In fact, of the 128 banks in the euro area will be directly supervised by the ECB – and will therefore be subject to the RDA in 2014 – no fewer than 13 are French – Public Investment Bank – as well as RCI Bank PSA Finance and the credit subsidiaries of car manufacturers Renault and PSA Bank.

And, for each bank, the number of indicators to take into account in assessing its credit risk and market could exceed one hundred in total, based on the operations performed truths in banking sectors of countries like Italy , Portugal, Greece, Cyprus or Slovenia, where historical data over seven years had been charged to banks .

CARP wants to get support by outside firms

Directions of control (documents) responsible for selecting portfolios to examine devolved on-site missions inspectors (in banks), management studies required to work on the methodology of stress tests which the ECB will proceed after reviewing the balance sheets bank. CARP is on the warpath. “Within the ACPR, 150-200 people carry out spot checks. Most of them will be allocated to the RDA in 2014”, says Nicolas Peeling.

Which still may ” not be enough to drive all the work in the allotted time”, according to Nicolas Fleuret, Director at Deloitte. That is why the ACPR has launched a tender to get support by external firms in the execution of the RDI, like the ECB, which has hired consultants to Oliver Wyman.

Fitch believes that French banks do not need to be recapitalized

I must say that the stakes are high. It is, more or less, to convince international investors stung by the debt crisis in the euro area to regain confidence in the European banking system. In this regard, ” the communication of the results of the RDA in October 2014 will be a very important issue, given its potential impact on financial markets, ” warns Nicolas Peligry, ACPR.

Indeed, if the RDA should not appear recapitalization needs for French banks, according to rating agency Fitch, it will probably not be the same for other countries. Hence the need to finally put up the second pillar of the banking union, namely the single resolution mechanism so that the RDA does not only serve to identify faults, without having the means to address them.