Economic value of equity (EVE)
Hear no EVE, see no EVE
The Fed chastised SVB for poor rate-risk monitoring, but most US banks’ disclosures remain focused on earnings alone
US regionals remain laggards on EVE measure
Majority of lenders in Q1 did not report key metric that could have detected SVB’s risks
CaixaBank, UniCredit most exposed to rate increases in Europe
Banks report largest hits in IRRBB tests, but remain clear of fail threshold
Missing Basel metric could have revealed SVB risks
US regulators did not implement economic value of equity test that SVB failed badly in 2021
ECB promises ‘proportionate’ approach to interest rate risk
But banks still fear regulatory and investor response if many are classed as outliers
Regulator to ‘reflect’ on IRRBB shocks after rates leap
Once considered too harsh by banks, stress scenarios may even prove too generous
SocGen, ING most exposed to rate shocks among EU banks
Banks’ economic value of equity would shrink under higher rates scenarios