September 22
2021
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Emilija Berzanskaite
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14th September 2021
Banking & Finance Internal Market

Two Irish banks sanctioned by the European Central Bank for miscalculating their capital needs

The European Central Bank (ECB) has sanctioned Allied Irish Banks plc and its subsidiary EBS dac with penalties of 420,000 euros and 195,000 euros respectively, for miscalculating their risk-weighted assets, which affected intragroup equity exposures.

The ECB issued two decisions declaring that both Irish banks during the period between 2014 and 2016 have been reporting lower risk-weighted assets for intragroup equity exposures than they should have, consequently underestimating the risks a bank has on its books and improperly calculating their capital needs. As such, the banks reported a higher Common Equity Tier 1 (CET1) ratio, measuring bank’s financial strength and its ability to absorb unexpected losses, than they should have. 

Taking into account all the circumstances of the misconduct and in particular its impact, together with the fact that both banks showed cooperation with the ECB and took remedial actions on their own initiative, the ECB considered the breaches to be moderately severe and imposed two fines totaling 615,000 euros. The method the ECB uses to set the penalties can be found in its Guide.

Both decisions of the ECB can be disputed in proceedings before the Court of Justice.

The press release of the ECB is available here and the decisions can be accessed here and here.

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