AIB and EBS fined for miscalculating capital strength

AIB and EBS have been fined by the European Central Bank (ECB) for miscalculating their capital needs over a period of two years.

ccording to the ECB, the two State-owned banks recorded lower levels of risk weighted assets – a measure of risk exposure for a lender – and therefore reported higher capital levels than they should have between 2014 and 2016.

AIB Group notified the ECB of the mistake when it was discovered internally, according to a statement.

“AIB Group informed the ECB that we had misinterpreted certain provisions of the Capital Requirements Regulation in two of our subsidiaries – AIB plc and EBS dac- in the period from March 2014 to March 2016,” the statement said.

“As soon as the issue was identified, we brought it to the attention of the regulator, restored compliance and co-operated fully with the ECB review. The breach had no impact on customers and no impact on the Group’s consolidated capital ratios. We have since strengthened our controls to prevent any recurrence.”

AIB received a fine of €420,000 and EBS was penalised €195,000 for the miscalculation.

The ECB classified the breaches as “moderately severe” and confirmed that they did not affect the capital ratio at the consolidated group level, meaning investors did not have an inaccurate view of the bank’s ability to withstand losses.

The risk weighted assets in question related to “intragroup equity exposures”, meaning cross investments between the banks and related companies. They did not involve loans to customers, which are also counted as risk weighted assets when measuring capital strength.

A market source said these calculations were a normal part of accounting in a group structure and that the miscalculations were most likely due to a mistake rather than wrongdoing.

“Underestimating risk-weighted assets means the banks did not calculate their capital needs properly,” the ECB statement said.

“The CET1 ratio is a key indicator of a bank’s capital strength and its ability to absorb losses.”

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