ECB published a letter by Andrea Enria, Chair of the Supervisory Board of ECB, to members of the European Parliament. The letter sets out certain considerations to better understand the role of ECB in the sphere of prudential banking supervision. As a general principle, banks are responsible for determining their internal capital targets, provided they adhere to a range of minimum regulatory and supervisory thresholds. ECB Banking Supervision continually assesses the situation of supervised banks to ascertain whether they are in a position to comply with all prudential requirements in the foreseeable future. Heightened scrutiny is applied in periods when the business model of a bank undergoes changes that impact its risk profile and, thus, its capital and liquidity planning.
The letter specifies that ECB Banking Supervision engages in detailed discussions with these banks on their strategic and financial planning to gain assurance that they are maintaining adequate levels of capital and liquidity, commensurate with their risk profile, and the buffers needed to manage the risks inherent in their strategic plans. As described in more detail in the Supervisory Manual, the key supervisory tool supporting ongoing supervisory assessments is the Supervisory Review and Evaluation Process (SREP). Its aim is to capture the best possible overall picture of the risk profile of an institution. The ECB Banking Supervision applies the common Single Supervisory Mechanism (SSM) SREP methodology to all significant institutions, facilitating peer comparisons and large-scale transversal analyses. The methodology thus ensures a level playing field across supervised institutions, while taking into account their specific features.
In the letter, Andrea Enria stressed that the ECB Banking Supervision carries out all its supervisory tasks to promote the safety and soundness of the banking sector and the stability of the wider financial system. The ECB Banking Supervision is tasked with maintaining a level playing field, not enforcing competition (which is the responsibility of EU and national competition authorities). By ensuring even and consistent supervisory practices across euro area, the ECB Banking Supervision may indeed contribute to competitiveness in the banking sector. With respect to dealing with less liquid and illiquid securities, the supervisory objective is to ensure that balance sheet positions are valued, managed, and controlled in an appropriate manner. From its inception, the ECB Banking Supervision has promoted awareness of valuation risks and the application of prudent valuation and risk management approaches.
Keywords: Europe, EU, Banking, SREP, Banking Supervision, SSM, Supervisory Manual, European Parliament, ECB
Previous ArticleESRB Paper Examines Whether Regulatory Capital Has Made Banks Safer
HKMA has published a circular that sets out the regulatory and reporting treatment for loans that participating authorized institutions may grant to eligible borrowers under the 100% Personal Loan Guarantee Scheme.
ECB published the results of the assessment of internal models that banks use to calculate risk-weighted assets for credit, market, and counterparty credit risks.
PRA published a statement on the regulatory treatment of retail residential mortgage loans under the Mortgage Guarantee Scheme, or MGS.
FCA is consulting, via CP21/7, on the second phase of proposed rules to introduce the UK Investment Firm Prudential Regime (IFPR).
HM Treasury and BoE announced the joint creation of a Central Bank Digital Currency (CBDC) Taskforce to coordinate the exploration of a potential central bank digital currency in UK.
EIOPA published an opinion to set out its expectations on the supervision of the integration of climate change risk scenarios by insurers in their Own Risk and Solvency Assessment (ORSA).
EC published the Implementing Regulation 2021/622 that lays down implementing technical standards for reporting of the minimum requirement for own funds and eligible liabilities (MREL).
BCBS has set out the strategic work priorities, as part of its the work program for 2021-22.
Bundesbank published two circulars on AnaCredit reporting requirements. Circular 27/2021 covers changes to the reporting of branches, additional attributes to be reported for investment funds from August 01, 2021, and updates to the list of international organizations.
PRA published the policy statement PS8/21, which contains the final supervisory statement SS3/21 on the PRA approach to supervision of the new and growing non-systemic banks in UK.