06 November 2024

ECB Pesident Lagarde: Welcome address at the tenth anniversary of the Single Supervisory Mechanism

If we think back to how the banking sector was faring a decade ago, we can see just how much has changed. The euro crisis had exposed significant weaknesses: low equity buffers, high levels of non-performing loans and deep exposures to domestic sovereigns.

The SSM became operational ten years ago, almost to the day, on 4 November 2014. It was the most significant step forward in European integration since the introduction of the euro.

If we think back to how the banking sector was faring a decade ago, we can see just how much has changed. The euro crisis had exposed significant weaknesses: low equity buffers, high levels of non-performing loans and deep exposures to domestic sovereigns. Our challenge, as Danièle Nouy said at the time, was to “help rebuild confidence in the balance sheets of SSM area banks” amid a fragmented supervisory landscape.^[1]

Today, however, the situation is vastly different. Despite the major shocks that have hit the euro area in recent years, our banking sector is resilient.

The aggregate Common Equity Tier 1 (CET1) ratio rose from 12.7% in 2015 to 15.8% in mid-2024, while the liquidity coverage ratio increased from 138% to 159% over the same period.

The main risks we face today no longer stem from the banks themselves, but from an increasingly volatile external environment. And single supervision allows us to address these risks through a common, forward-looking approach.

So, have we achieved the initial aims of this single supervision?

The achievements of single supervision

If we consider the tumultuous events of the past few years, it is clear that European supervision has exceeded expectations. European banks have become considerably more resilient, providing critical stabilisation during the recent periods of disruption.

In essence, European supervision has successfully addressed what Herman Van Rompuy identified in 2012 as the need to “correct the weakness of the policy infrastructure of the common currency”.^[2]

First, more rigorous and more uniform supervision has bolstered public confidence, ensuring that bank deposits are seen as equally safe across the euro area, thereby preserving the integrity of our monetary union. Since the start of single supervision, household’s cross-border deposits have more than doubled to €151 billion today.^[3]

Second, sound banks have ensured that major shocks have not disrupted the effectiveness of monetary policy. Both when we eased policy to avert deflation during the pandemic and when we raised rates rapidly to combat inflation after the pandemic, the banks enabled our policy impulses to be transmitted smoothly across the euro area.

But we must also recognise that these stability-oriented goals, which arose from the conditions that led to the banking union agenda, are not ends in themselves. They are merely the foundation.

Our ultimate aim is for banks to be sound and for the policy framework to be complete, so that they can safely tap into resources from across the euro area and use them to fund innovation, investment and growth.

And it is on this particular objective that Europe is falling short in the transformative era we are living in today.

We are facing a quadruple challenge: decarbonisation, deglobalisation, digitalisation and decoupling. These forces are putting our competitiveness and strategic autonomy to the test....

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