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March 26, 2018

Danièle Nouy, Chair of the ECB Supervisory Board, presented the ECB annual report on supervisory activities for 2017. She presented the annual report to the Economic and Monetary Affairs (ECON) Committee of the European Parliament. She outlined the supervisory priorities for 2018 and discussed the key activities of ECB in 2017, particularly the work on non-performing loans (NPLs), targeted review of internal models (TRIM), Brexit, thematic reviews, and less significant institutions (LSIs).

Danièle Nouy began by examining developments in the banking sector and highlighting the increase in average common equity tier 1 ratio of euro area banks, along with the overall decrease in NPL ratio for banks under ECB supervision. She also discussed the ECB approach to tackle NPLs and the work done in this area during the year. She welcomed the legislative proposal of EC on the introduction of statutory prudential backstops and mentioned that ECB and EC have closely collaborated on the legislative proposal and the Addendum on NPLs. Furthermore, she stated that the TRIM project is progressing according to plan. About 90 TRIM on-site investigations were launched in 2017. Meanwhile, the first results of the project have become available: cases of non-compliance with the regulatory framework in respect of issues such as model governance and model validation have already been addressed through supervisory decisions.

With respect to Brexit preparations, she added that ECB and national supervisors expect to receive authorization applications by the second quarter of 2018 and that ECB is closely monitoring the relocation plans of banks. Speaking about the ECB thematic review on IFRS 9, she added that this exercise improved the quality of IFRS 9 implementation and allowed advanced data collection of the quantitative impact on the prudential figures. Moreover, ECB performed an in-depth assessment of the overarching governance of credit institutions and of data aggregation capabilities and reporting practices for a sample of banks. The results were communicated to these banks via supervisory dialog, and requests for remedial actions were included in the final follow-up letters. Joint supervisory standards have been developed on the licensing of LSIs with fintech business models. A common SREP methodology for LSIs was adopted and ECB harmonized the way in which national competent authorities exercise options and national discretions for LSIs.

She also outlined the four supervisory priorities for 2018: focus supervision on business models and profitability drivers of banks; monitor credit risk, with the emphasis still being on NPLs and exposure concentrations; review internal models (TRIM) and continue to push for improvement of internal processes for capital and liquidity adequacy of banks; and focus on supervisory activities for this year’s supervisory stress tests and Brexit preparations. She concluded that a genuine banking union not only needs the three pillars, but it also has to be a real union, without regulatory fragmentation and ring-fencing of national markets. Regulatory harmonization has to be accompanied by the completion of the institutional architecture, with a credible common backstop to the Single Resolution Fund (SRF), which should cover both solvency and liquidity support, and a fully mutualized European Deposit Insurance Scheme (EDIS). Ms. Nuoy finally mentioned that "we need a more European approach" toward combating money laundering. The legislation should be harmonized, possibly with a European institution, which cannot be the Single Supervisory Mechanism, in charge of ensuring consistent and thorough application across member states.


Related Link: Speech

Keywords: Europe, EU, Banking, NPLs, TRIM, Banking Supervision, Brexit, AML, ECB

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