ECB sanctions Landesbank Hessen-Thüringen Girozentrale for misreporting capital needs

The European Central Bank (ECB) has imposed an administrative penalty of €6.825 million (€6,825,000) on Landesbank Hessen-Thüringen Girozentrale (Helaba) after the bank reported wrongly calculated risk-weighted assets for market risk.
Underestimating risk-weighted assets means a bank does not calculate its capital needs properly and reports a higher Common Equity Tier 1 (CET1) ratio than it should have done, which is a key indicator of a bank’s capital strength and its ability to absorb losses.
In 2020, Landesbank Hessen-Thüringen Girozentrale underreported risk-weighted assets for market risk for three straight quarters. The bank made a deliberate decision to ignore the increased volatility seen in the financial markets at the time of the coronavirus (COVID-19) pandemic when using its internal models to calculate its risk-weighted assets for market risk. The bank moved above and beyond what was permitted at the time under the ECB’s temporary relief measures for capital requirements on market risk. The bank intentionally provided the ECB with incorrectly calculated data, stopping the ECB from getting a complete picture of the bank’s risk profile.
The ECB classified this breach as severe and the bank may challenge the ECB’s decision before the Court of Justice of the European Union.