meta_id 3327337

In July 2026, the European Central Bank (ECB) published clarifications on supervisory expectations for banks' internal capital adequacy assessment processes (ICAPs) and internal liquidity adequacy assessment processes (ILAAPs), building on its November 2018 guidance. The document reminds banks of sound practices for capital and liquidity management and outlines governance expectations around ICAAP and ILAAP package submissions to Joint Supervisory Teams (JSTs). The ECB emphasises that ICAPs and ILAAPs must be continuous processes subject to strong internal governance, including sound approval and regular review procedures throughout the year, independently from supervisory submissions. Capital and liquidity adequacy statements must be produced, agreed, and signed by the management body before submission. Banks should conduct forward-looking capital and liquidity adequacy assessments considering both normative and economic perspectives for at least three years, applying baseline and adverse scenarios. The ECB expects banks to demonstrate credibility and robustness of macroeconomic scenarios, identify material risk drivers, and conduct granular sensitivity analyses. Regarding stress testing, adverse scenarios must reflect each entity's vulnerabilities and severe external developments, with macroeconomic assumptions reflecting downturns at least as severe as official consensus forecasts. The ECB clarifies expectations on internal capital eligibility, noting that Additional Tier 1 (AT1) instruments typically fail eligibility tests and should not be included in internal capital calculations. Banks must also demonstrate how capital and liquidity planning outcomes inform concrete management decisions, including remuneration, capital allocation, risk appetite setting, and dividend distribution policies. Starting with the 2025 supervisory review and evaluation process (SREP), the submission process comprises two components: annual submission of key documents by March 15, and continuous submission of new or significantly revised internal documents throughout the year. Banks must provide capital adequacy statements, liquidity adequacy statements, capital and funding plans, reader's manuals, ICAAP and ILAAP templates via the Short Term Exercise (STE), and financial and capital projections. The reader's manual should confirm document completeness and map information items to submitted documentation. REFERENCES: European Central Bank. (2026). ECB clarification on ICAAPs and ILAAPs and respective package submissions. Available at: www.ecb.europa.eu