European Central Bank Banking Supervision has published a guide to the internal capital adequacy assessment process that sets out its understanding of the Article 73 Capital Requirements Directive requirements for significant institutions in the Single Supervisory Mechanism. The guide frames a sound ICAAP as a prudent and conservative process embedded in the bank’s overall management framework and built on two complementary views of capital adequacy: a normative perspective focused on meeting regulatory and supervisory capital demands over the medium term, and an economic perspective focused on ensuring risks are covered by internal capital. The guide organizes the ECB’s expectations into seven principles. These cover management body responsibility for ICAAP governance, including annual approval of key elements and a signed capital adequacy statement, integration of ICAAP outputs into strategy, risk appetite and decision-making, and regular management reporting with reporting to the management body expected at least quarterly. It also requires institutions to identify all material risks, including risks arising from participations, subsidiaries, connected entities and outsourcing arrangements, to maintain a clear and prudent definition of internal capital, and to use risk quantification methods that are tailored to the institution, sufficiently conservative, supported by strong data quality and subject to independent internal validation. Under the normative perspective, capital planning is expected to cover at least three years and include baseline and adverse scenarios. Stress testing is expected to cover both normative and economic perspectives, be based on institution-specific vulnerabilities, and include reverse stress testing at least annually. The ECB says the seven principles will be considered in ICAAP assessments as part of the Supervisory Review and Evaluation Process and will also be used in supervisory dialogue with individual institutions. The guide is intended as a practical supervisory tool, does not override applicable law, and will be reviewed as supervisory practice, regulation and authoritative interpretations develop.
European Central Bank - Banking Supervision2026-07-15
European Central Bank Banking Supervision publishes ICAAP guide with seven supervisory principles for significant institutions
European Central Bank Banking Supervision has issued a guide explaining its supervisory expectations for ICAAPs at significant institutions. It sets seven principles covering governance, integration into risk and capital management, material risk identification, internal capital, conservative risk quantification and stress testing. The principles will feed into SREP assessments and supervisory dialogue.