March 16, 2018

EBA published its report examining the functioning of supervisory colleges in 2017. The report summarizes the EBA assessment of the activities of supervisory colleges against the EBA 2017 Colleges Action Plan and the relevant regulation.

The report concludes that significant improvements have been achieved over the last couple of years in college interactions, responsiveness, and in the quality, coverage, and reasoning of the joint decision documents. Further efforts are, however, expected both from home and host supervisors to enhance the joint decision process and ensure the completeness of the supervisory review and evaluation process (SREP) assessments. The key conclusions of the report include the following:

  • On organizational aspects of the colleges' work, the report noted that closely monitored colleges maintained frequent, typically quarterly, interactions in 2017, and most of them ensured an active cooperation with the EBA staff too.
  • On risk assessments, the report concluded that while they differed in terms of granularity across closely monitored colleges, all were a good summary of the supervisory evaluation. Nevertheless, there were no improvements on the timely distribution of mandatory annexes, covering capital and liquidity measures, in some affected colleges.
  • On joint decisions, the report identified considerable improvements in the quality of both the capital and liquidity joint decisions of closely monitored colleges, with well-reasoned and clear references to the conclusions of the SREP. Also the granularity of information underpinning the required level of capital in the joint decisions has improved considerably in the vast majority of colleges, along with the articulation of the Pillar 2 capital requirement, including its compositions. 
  • In nearly half of the closely monitored colleges, members were unable to reach joint decision on the assessment of group recovery plans, mainly due to requests for individual recovery plans in addition to the group ones, resulting in either partial joint decisions or unilateral decisions. Moreover, EBA pointed out that not all available tools for reaching joint decisions have been used by the relevant authorities, particularly the option to resolve disagreements through mediation.

Supervisory colleges are the fora for planning and coordinating supervisory activities, sharing important information about the supervised entity, conducting the supervisory risk/liquidity risk assessment, and reaching joint decisions on institution-specific requirements and on the assessment of group recovery plan. EBA identified four key topics for supervisory attention for 2017: non-performing loans and balance sheet cleaning; business model sustainability; operational risk, including conduct risk and IT risk; and comparability of risk-weighted assets and the use of EBA benchmarks in SREP. The report also assesses the extent to which these topics have been reflected in the work program of the colleges. 

 

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Keywords: Europe, EU, Banking, SREP, Supervisory Colleges, NPLs, Operational Risk, EBA

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