- Goldman Sachs Bank Europe breached credit risk reporting rules
- ECB imposes penalty of €6.63 million
The European Central Bank (ECB) has imposed an administrative penalty of €6.63 million ($7.2mn) on Goldman Sachs Bank Europe SE after the bank reported wrongly calculated risk-weighted assets for credit risk.
In 2019, 2020 and 2021, for eight consecutive quarters, the bank reported lower risk-weighted assets for credit risk than it should have done. This occurred because the bank misclassified corporate exposures and applied a lower risk-weight to them than what banking rules prescribe. Deficiencies in internal controls prevented the bank from detecting this mistake in a timely manner. The bank reported wrongly calculated figures to the ECB, therefore preventing the ECB from having a comprehensive view of its risk profile.
Risk-weighted assets are a measure of the risks a bank has on its books. They serve as a basis for banks to calculate their capital needs. Underestimating risk-weighted assets means the bank did not calculate its capital needs properly and reported higher capital ratios than it should have done. Capital ratios are key indicators of a bank’s capital strength and its ability to absorb losses.
When deciding on the amount of a penalty to sanction a bank, the ECB applies its Guide to the method of setting administrative pecuniary penalties. Out of the severity categories “minor”, “moderately severe”, “severe”, “very severe” and “extremely severe”, the ECB classified this breach as “severe”.