This Friday, the European Central Bank (ECB) fined Luxembourg state-owned Banque et Caisse d’Épargne de l’État €1,685 million for failing to adequately report risk-weighted assets calculated to measure market exposures. and credit.
Between 2018 and 2022, the Central European entity undervalued risk-weighted assets related to foreign exchange exposures for 17 consecutive quarters since it did not accurately reflect its US dollar-denominated equity positions in accordance with the macroprudential requirements.
Furthermore, between 2021 and 2023, for eight quarters, the bank also did not correctly value its risk weighted assets by not accounting for an indirect capital position when calculating the amount of exposure of qualifying participations outside the financial sector.
As a result of all this, the bank did not deduct the relevant exposure amount from its own funds or apply the correct risk weight prescribed by the applicable framework.
Understatement of risk-weighted assets implies that an entity has not properly calculated its capital requirements and declared higher capital ratios than it should.
“This prevents the ECB from obtaining a complete view of the risk profile. Capital ratios are key indicators of the strength of a bank’s capital and its ability to absorb losses,” the organization led by Christine Lagarde has motivated.
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