The institute underreported market price risks during the corona pandemic. The ECB banking supervisor has now sanctioned this.
(Photo: dpa)
Frankfurt The Landesbank Hessen-Thüringen has to pay a fine of 6.8 million euros at the behest of the European Central Bank (ECB). During the corona pandemic, the institute made unauthorized interventions in the risk models with which it measures the risks arising from price fluctuations on the capital market. This was announced by the European Central Bank (ECB), which is responsible for supervising the most important banks in the euro zone.
As a result of these interventions, Helaba reported too low a risk to the ECB for three quarters. This is a problem because a bank’s capital requirements depend on the riskiness of the transactions and investments it enters into. The higher the risk, the higher the capital requirement. Since the bank corrected the risks it had taken on downwards through its interventions, it reported an insufficient equity capital requirement – and thus an equity ratio that was too high.
For banks, this risk-weighted equity ratio is a very important indicator of a bank’s resilience, especially in times of crisis.
Helaba explained that when the corona pandemic broke out in spring 2020, there were “sometimes erratic price movements” on the capital markets. Some parameters in their risk models had shown abnormalities “that were difficult or impossible to verify”. “During this phase, Helaba made adjustments to some of the parameters in the models in order to better reflect the risks and thus be able to better manage the bank in this phase of high volatility,” said the Landesbank.
From the ECB’s point of view, however, this was a “serious violation”. This is the middle category on a five-point scale ranging from “minor” to “extremely severe.” In doing so, Helaba ignored the volatility on the capital markets and went beyond the prudential relief that the bank supervisors had temporarily granted to the financial institutions during the pandemic. The institution should have had the ECB approve the intervention.
Helaba stated that it did not intentionally violate the regulations and assumed that these interventions were permitted. The – audited – annual financial statements for 2020 are not affected by this violation, as they involved risk calculations that were applied during the year. According to its own statements, Helaba made a provision of EUR 6.8 million for the fine in its 2022 financial statements.
More: ECB examines banks’ risk buffers in difficult times