ECB Annual Report Sets Out Supervisory Priorities for 2022-24
The European Central Bank (ECB) Banking Supervision published a report on supervisory activities for 2021, a letter on supervisory expectations regarding the leveraged transactions of significant institutions, and a letter that clarifies differences in lending rates across member states.
The annual report presents the work of ECB Banking Supervision in the year under review as well as its supervisory priorities for 2022-24. During this period, ECB aims to ensure that banks emerge healthily from the pandemic, seize the opportunity to address structural weaknesses via effective digitalization strategies and enhanced governance, and tackle emerging risks, including climate-related and environmental risks and information technology and cyber risks. For each priority, the ECB Banking Supervision developed a set of strategic objectives and underlying work programs, spanning the period 2022-24. The key planned supervisory activities of the ECB Banking Supervision are as follows:
- Regularly monitor bank exposures toward vulnerable sectors, along with the targeted reviews of bank exposures to commercial real estate
- Strengthen efforts to ensure that banks’ risk management practices are adequate, to prevent the build-up of unmitigated risks in the area of leveraged finance
- Increase supervisory attention on risks posed by the excessive search for yield through regular Joint Supervisory Team engagement, targeted reviews, and on-site inspections
- Intensify efforts to assess banks’ digitalization strategies
- Carry out targeted initiatives to ensure that banks effectively address the identified deficiencies in the functioning and composition of their management bodies, with a focus on their collective suitability and diversity
- Conduct a thematic review, in the first half of 2022, to assess banks’ progress toward incorporating climate and environmental risks into their business strategies and their governance and risk management frameworks.
- Conduct a climate risk stress test
- Carry out targeted reviews and on-site inspections
The annual report also highlights that, in 2021, the ECB Banking Supervision investigated climate and environmental risk disclosures of institutions. findings from this investigation will be published in a report and individual feedback has been already provided to each bank. In the letter on leveraged transactions, the ECB Banking Supervision specifies its expectations regarding the leveraged transactions of significant institutions, particularly regarding the establishment of risk appetite frameworks for leveraged transactions, in accordance with the good risk management practices set out in the ECB guidance on leveraged transactions. Finally, the letter on differences in lending rates across member states highlights that prudential requirements and differences in risk-weighted asset (RWA) densities are only one element to consider in explaining differences in mortgage loan interest rates. The prudential framework has been calibrated in such a way that higher risks are reflected in higher RWA densities, which in turn implies that higher capital requirements can be appropriate. in this respect, it is key that internal models appropriately measure risks. The letter further highlights that there are several measures in the Capital Requirements Regulation/Directive (CRR-CRD) review that will reduce unwarranted variability of RWAs across institutions.
Related Links
Keywords: Europe, EU, Banking, Climate Change Risk, ESG, Stress Testing, Basel, Regulatory Capital, Banking Supervision, Lending, Supervisory Priorities, Leveraged Transactions, ECB, Subheadline
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Related Articles
EBA Sets Out Roadmap for 2023, Updates Reporting Framework 3.2
The European Banking Authority (EBA) published its work program for 2023 as well as the technical package for phase 3 of version 3.2 of its reporting framework.
FED Announces Launch of Climate Scenario Analysis Exercise in 2023
The Board of Governors of the Federal Reserve System (FED) announced a pilot climate scenario analysis exercise for six largest banks in the U.S.
BIS Paper Studies Impact of Fintech Lending on Small Businesses in US
The Bank for International Settlements (BIS) published a paper that studies impact of fintech lending on credit access for small businesses in U.S.
UK Regulators Issue CRR Changes and Stress Test Scenarios for Banks
The Prudential Regulation Authority (PRA) issued the policy statement PS8/22 to amend the Own Funds and Eligible Liabilities (CRR) Part of the PRA Rulebook and update the supervisory statement SS7/13 titled "Definition of capital (CRR firms).
EBA Launches EU-Wide Transparency Exercise in 2022
The European Banking Authority (EBA) launched the EU-wide transparency exercise for 2022, with results of the exercise expected to be published at the beginning of December, along with the annual Risk Assessment Report.
SRB on CRR Quick-Fix to Policy for Multiple Point of Entry Banks
The Single Resolution Board (SRB) welcomed the adoption of the review of the Capital Requirements Regulation, or CRR, also known as the "CRR quick-fix."
EC Rule Lists Advanced Economies for Market Risk Capital Calculations
The European Commission (EC) recently adopted the Delegated Regulation 2022/1622, which sets out the regulatory technical standards to specify the countries that constitute advanced economies for the purpose of specifying risk-weights for the sensitivities to equity.
EBA Publishes Final Regulatory Standards on STS Securitizations
The European Banking Authority (EBA) published the final draft regulatory technical standards specifying and, where relevant, calibrating the minimum performance-related triggers for simple.
ECB Further Reviews Costs and Benefits Associated with IReF
The European Central Bank (ECB) is undertaking the integrated reporting framework (IReF) project to integrate statistical requirements for banks into a standardized reporting framework that would be applicable across the euro area and adopted by authorities in other EU member states.
EBA Publishes Funding Plans Report, Receives EMAS Certification
The European Banking Authority (EBA) has been awarded the top European Standard for its environmental performance under the European Eco-Management and Audit Scheme (EMAS).
