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The European Central Bank Favours EVS Above All Other Valuation Standards

November 14, 2014

The European Central Bank Favours EVS

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"Real estate should be valued in line with European Standards EVS-2012 (Blue Book) and other international standards such as the Royal Institute of Chartered Surveyors (RICS) guidelines - where a conflict is seen EVS2012 will apply (for the avoidance of doubt - this should be considered to apply throughout the
document). For the avoidance of doubt a full e.g. RICS report is not required."ECB Asset Quality Review March 2014, "Collateral and Real Estate Valuation", page 144, last indent.

The European Central Bank (ECB) has taken on new banking supervision tasks as part of a Single Supervisory Mechanism (SSM). The SSM creates a new system of financial supervision comprising the ECB and the national competent authorities of participating EU countries: Eurozone states and those others which have decided to enter into close cooperation with the SSM. The main aims of the SSM are to ensure the safety and soundness of the European banking system and to increase financial integration and stability in Europe.

The ECB is responsible for the effective and consistent functioning of the SSM, directly supervising significant credit institutions. It works closely with the national competent authorities to supervise all other credit institutions under the overall oversight of the ECB. The ECB may decide at any time to take responsibility for a less significant credit institution. Deciding on whether credit institutions are significant or not will also be based on:
• the total value of their assets;
• the importance for the economy of the country in which they are located or the EU as a whole;
• the significance of their cross-border activities;
• whether they have requested or received public financial assistance from the European Stability Mechanism (ESM) or the European Financial Stability Facility (EFSF).

The significance of the EVS breakthrough must be seen in this context. In preparing for its November 2014 takeover of banking supervisory power, the ECB required the biggest banks in the Union subject to the SSM to value their real estate exposures in line with EVS within the Asset Quality Review process, emphasising that if other standards are chosen, in case of conflict, EVS prevails.

Under the Mortgage Credit Directive, EVS is recommended to the member states along with IVSC and RICS standards. Under the ECB Asset Quality Review, EVS are the dominant standards, to be preferred in case of conflict with any other standard. This is fundamental as the ECB's instructions are non-negotiable for banks.