March 07, 2019

While speaking at the SSM and EBF Boardroom dialog in Frankfurt, Andrea Enria, Chair of the Supervisory Board of ECB, discussed the benefits of integration and Banking Union, the priorities for Single Supervisory Mechanism (SSM), and the ECB approach to supervision of banks.

Andrea Enria mentioned the benefits of integration in EU market and highlighted that banking union was launched to address the adverse feedback loop between banks and their sovereigns and to ensure that banks more effectively meet the needs of corporates and households throughout a crisis. However, despite the progress achieved, the European banking sector is still fragmented, as the restructuring process has taken place mainly along national lines. Mr. Enria pointed out that many of the decisions required to advance the integration of European banking markets lie outside the remit of supervisors. Despite the progress toward a much more harmonized regulatory framework and a single rulebook directly applicable across EU, in certain important areas the progress is falling short of what is needed. If the aim is to have a truly European banking sector, banking groups should be allowed to freely allocate their regulatory capital and their liquidity within the euro area. However, there is still reluctance to remove existing barriers.

Mr. Enria added that important priorities for the Single Supervisory Mechanism, or SSM, have been well-defined and call for continued focus and effort on the part of both supervisors and firms. The cleaning-up of balance sheets must be completed, the issue of high levels of non-performing loans (NPLs) needs to be resolved, the new BCBS framework for market risk might have to be implemented in a period of heightened volatility, and the robustness of internal risk measurement and management must remain a central focus of the supervisory work. The review of internal models—known as the TRIM project—will be completed this year, but the follow-up to its findings, coupled with the implementation of the standards and guidelines developed by EBA, will keep supervisors and banks busy for quite some time. He emphasized that greater consistency and reliability of risk-weighted asset calculations is needed to foster good risk management practices and fully restore the credibility of the regulatory and supervisory framework. He then discussed how Brexit will change the shape of the banking sector. He said: "To me, one thing is clear: post-Brexit, withholding cooperation is no solution. UK and EU supervisors must find ways to work together toward a safe and sound banking sector. And I can reassure you that constructive solutions are being found.”

Next, he discussed the ECB approach to supervision and highlighted that ECB decisions are based on both rules and judgment. He also added that European banking supervisors must be accountable and transparent. Banks, investors, and the public must be able to understand banking supervisors' principles and policies. Only then will they be able to anticipate supervisors’ actions and expectations. Take the supervisory review and evaluation process (SREP), for example. The SREP is ECB’s core tool for assessing the risks of each bank and determining its Pillar 2 requirements. He believes that ECB has made a commendable effort to become more transparent on its SREP methodology. Also, he noteed that practices on the disclosure of Pillar 2 requirements vary widely. In some cases, no information is disclosed, even though it is essential for determining the triggers that may lead to suspending coupons or to converting Additional Tier 1 instruments into equity. Breaching Pillar 2 requirements can also trigger a “failing or likely to fail” assessment, with direct consequences for all categories of investors and possibly even for uninsured depositors. Thus, greater transparency would be warranted.

 

Related Link: Speech

 

Keywords: Europe, EU, Banking, Stability and Integration, NPLs, SSM, Banking Union, Banking Supervision, ECB

Related Articles
News

BCBS and IOSCO Extend Implementation of Final Phase of Margin Rules

BCBS and IOSCO agree to one-year extension of the final implementation phase of the margin requirements for non centrally cleared derivatives.

July 23, 2019 WebPage Regulatory News
News

APRA Proposes Stronger Remuneration Requirements in Australia

APRA is proposing to strengthen prudential requirements for remuneration across all APRA-regulated entities in the banking, insurance, and superannuation industries by issuing CPS 511, a new prudential standard on remuneration.

July 23, 2019 WebPage Regulatory News
News

PRA Consults on Availability of Group Own Funds Under Solvency II

PRA published a consultation paper (CP16/19) that sets out its proposed approach to the determination of the availability of subordinated liabilities and preference shares in group own funds.

July 22, 2019 WebPage Regulatory News
News

EIOPA Consults on Methodological Principles for Insurer Stress Testing

EIOPA published a discussion paper on the methodological principles for stress testing the insurance sector in EU.

July 22, 2019 WebPage Regulatory News
News

US Agencies Adopt Rule to Exclude Community Banks from Volcker Rule

US Agencies (CFTC, FDIC, FED, OCC, and SEC) adopted a final rule to exclude community banks from the Volcker Rule, in line with amendments to certain sections of the Economic Growth, Regulatory Relief, and Consumer Protection (EGRRCP) Act.

July 22, 2019 WebPage Regulatory News
News

US Agencies Adopt Amendments to Simplify Regulatory Capital Rules

US Agencies (FDIC, FED, and OCC) adopted a final rule that reduces regulatory burden by simplifying several requirements in the regulatory capital rules for banks.

July 22, 2019 WebPage Regulatory News
News

IA of Hong Kong Delegates Inspection and Investigation Powers to HKMA

HKMA and IA of Hong Kong jointly issued a statement announcing the delegation of the inspection and investigation powers of IA to HKMA, pursuant to the statutory regulatory regime for insurance intermediaries under the Insurance Ordinance.

July 19, 2019 WebPage Regulatory News
News

FSB Extends Implementation Timeline for Policy Recommendations on SFTs

FSB announced adjustments to the implementation timelines for its recommendations on securities financing transactions (SFTs), specifically those related to the minimum haircut standards for non-centrally cleared SFTs.

July 19, 2019 WebPage Regulatory News
News

EBA Single Rulebook Q&A: Third Update for July 2019

EBA published answers to six questions under the Single Rulebook question and answer (Q&A) tool this week.

July 19, 2019 WebPage Regulatory News
News

EBA Report Assesses Regulatory Framework for Fintech Activities

EBA published the findings of its analysis on the regulatory framework applicable to fintech firms when accessing the market.

July 18, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 3494