ECB clarifies bank capital, liquidity assessment rules
The European Central Bank has issued clarifications on its supervisory expectations for banks' Internal Capital Adequacy Assessment Processes (ICAAP) and Internal Liquidity Adequacy Assessment Processes (ILAAP). The document, published in July 2026, outlines governance around submissions and key content areas.
Robust frameworks for capital and liquidity
The ECB clarifies its supervisory expectations for banks' ICAAPs and ILAAPs, emphasizing continuous processes and strong internal governance.
Banks must ensure high-quality documentation, with capital and liquidity adequacy statements requiring prior management body approval and signature.
Forward-looking capital and liquidity assessments are expected for at least three years, covering both normative and economic perspectives under baseline and adverse scenarios.
These scenarios demand clear description and justification, reflecting the bank's complexity, risk profile, and external conditions.
Banks must demonstrate the credibility of macroeconomic assumptions, ensuring consistency with official consensus forecasts.
Institutions should also identify material risk drivers, analyze capital position sensitivity, and design stress test scenarios that reflect their key vulnerabilities.
The economic perspective is crucial, informing normative projections and addressing the risk of unrealised losses.
Refining existing supervisory expectations
The ECB's clarification reinforces existing supervisory expectations from the 2018 ICAAP/ILAAP Guides and EBA guidelines, focusing on sound practices over new requirements.
Banks must tailor their capital and liquidity adequacy assessment processes to their specificities.
A robust capital planning process should detail how banks meet supervisory and economic capital needs under baseline and adverse conditions, considering minimum regulatory ratios and internal thresholds.
This includes describing key management actions and quantifying their impact on capital ratio projections.
Banks must also maintain robust governance for triggering and applying these actions effectively.
Shareholder distribution policies must be well-governed and commensurate with forward-looking capital adequacy, requiring JST engagement before material changes, and expressed as a percentage of profits, not absolute amounts, per EBA Q&A 2023_6887.
Clarity, not new burdens
This clarification reinforces the ECB's focus on the quality and robustness of banks' internal processes, rather than introducing new requirements.
It underscores the importance of strong governance and forward-looking assessments for capital and liquidity management.
For banks, this means a renewed emphasis on documenting and evidencing their existing practices to meet supervisory expectations.