ECB: ICAAPs need further improvements

The European Central Bank published on 12th August 2020 a report on banks’ ICAAP practices. The financial stress caused by the COVID-19 pandemic has further underlined the need for banks to identify and effectively manage their risks to ensure they have sufficient capital to absorb losses and steer their business models through periods of adversity.

The ECB’s analysis revealed several relatively underdeveloped ICAAP areas which deserve attention, but the main areas for further improvement are the following:

• Data quality issues,
• Economic internal ICAAP perspective,
• Stress testing.

This article provides further insight on the main conclusions alongside the seven principles under the ICAAP Guide.