Review of the 2017 SREP Results

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Abstract

This paper reviews the 2017 SREP results with a view to assessing their capital market implications and seeing whether the information provision about the SREP results could be improved. Aggregated SREP information as published by the ECB can be useful in detecting trends in banks’ conditions, but it cannot be meaningfully applied to assess capital market reactions to the SREP results. Bank-level SREP disclosures are voluntary, and therefore are expected to be biased towards news that is favorable to investors in securities. Consistent with this, we find that bank stock returns on average are positive on SREP disclosure days. Overall, the 2017 SREP information that is in the public domain is
insufficient to evaluate the efficacy of the SREP as conducted by the ECB in terms of improving the regulatory and market discipline of banks. The
publication of full bank-level SREP information (by either the ECB or the
individual banks) would facilitate such an evaluation, but full disclosure is
undesirable as it exposes the banks with the weakest supervisory reviews to potentially very severe market discipline. However, the ECB could improve the information provision about the SREP by requiring banks that choose to reveal any capital regulatory information to disclose a complete breakdown of their CET1 demand to improve data comparability across banks and hence potentially market discipline.
Original languageEnglish
Place of PublicationBrussels
PublisherEuropean Parliament
Number of pages19
Publication statusPublished - Mar 2018

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Market discipline
Disclosure
Information provision
Capital markets
Breakdown
Investors
Market reaction
Evaluation
Regulatory capital
Efficacy
News
Stock returns

Cite this

Huizinga, H. (2018). Review of the 2017 SREP Results. Brussels: European Parliament.
Huizinga, Harry. / Review of the 2017 SREP Results. Brussels : European Parliament, 2018. 19 p.
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Huizinga, H 2018, Review of the 2017 SREP Results. European Parliament, Brussels.

Review of the 2017 SREP Results. / Huizinga, Harry.

Brussels : European Parliament, 2018. 19 p.

Research output: Book/ReportReportProfessional

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Huizinga H. Review of the 2017 SREP Results. Brussels: European Parliament, 2018. 19 p.