|
|
It is hard to believe that it’s only a decade since supervisors from across Europe first came together in truly European supervisory teams on a Tuesday morning in November 2014.
Just like the first ten years of a child’s life, the first decade of European banking supervision has also been a period of growth and development. During this time, we have matured from a start-up into a well-established, effective supervisor, building on the best practices of supervisors across Europe. And this is more relevant than ever given the increasingly complex external risk landscape. Think about heightening risks from geopolitical shocks, cyber risks and the climate and nature crises.
These evolving risks require supervision to evolve, too. This is why we have embarked on a journey to make European banking supervision more risk-focused, efficient and effective. For example, we recently announced change to the Supervisory Review and Evaluation Process (SREP) – our annual health check of banks – making it more targeted and more risk-focused in a new risk environment.[1] The revised SREP also puts greater emphasis on impact and effectiveness, which is the focus of my remarks today.
In this context, I am pleased to be speaking to an audience of general counsels from the banks under our supervision. The way we – ECB Banking Supervision – interact with you – representatives of the banks we supervise – is of paramount importance for our shared goal of safe and sound banks.
So, what does effective supervision mean in practice?
Our experience of almost ten years of European supervision shows that, in most cases, banks address the root causes of supervisors’ findings and that’s the end of the story. If banks remediate shortcomings in a timely manner based on what we refer to as “supervisory dialogue”, we have a very efficient and effective way of supervising.
But there are also cases where banks fail to address deficiencies in good time. For these cases, the legislator has given the ECB a very broad supervisory toolbox that we are able and willing to use – always in a proportionate manner.
Internationally, various reports on the lessons from the banking turmoil in March 2023 all explicitly recommended that supervisors should make active use of their supervisory tools to compel banks to take timely and concrete remedial action.[2] In fact, International Monetary Fund staff concluded in a paper published in 2010 that a willingness to act is a key ingredient for good supervision.[3]
Moreover, in 2022 we took the initiative to ask a group of independent experts to review our SREP. In their report, which was published last year, they also urged the ECB to use the full range of supervisory tools available.[4]
The use of supervisory powers to compel banks to make concrete improvements is therefore not merely a nice-to-have – it is international best practice to ensure that banks remain safe and sound, which is the ultimate goal of prudential supervision....
more at SSM