Featured Product

    Andrea Enria of ECB Speaks on Principles of Banking Supervision

    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

    HKMA Consults on Supervisory Policy for OTC Derivatives Transactions

    HKMA is consulting on revisions to the Supervisory Policy Manual module CR-G-14 on margin and other risk mitigation standards for non-centrally cleared over-the-counter (OTC) derivatives transactions.

    May 25, 2020 WebPage Regulatory News
    News

    PRA on Regulatory Capital and IFRS 9 Requirements for Payment Holidays

    PRA provided further information on the application of regulatory capital and IFRS 9 requirements to payment holidays granted or extended to address the challenges arising from COVID-19 outbreak.

    May 22, 2020 WebPage Regulatory News
    News

    HKMA on Fintech Adoption and Innovation by Banks in Hong Kong

    HKMA announced the publication of a report on fintech adoption and innovation in the banking industry in Hong Kong.

    May 20, 2020 WebPage Regulatory News
    News

    BIS on Impact of Increasing Use of Cloud Technology on Cyber Risk

    BIS published a working paper that examines the drivers of cyber risk, especially in context of the cloud services.

    May 20, 2020 WebPage Regulatory News
    News

    ECB Consults on Guide for Managing Climate and Environmental Risks

    ECB launched consultation on a guide specifying how the Banking Supervision expects banks to consider climate-related and environmental risks in their governance and risk management frameworks and when formulating and implementing their business strategy.

    May 20, 2020 WebPage Regulatory News
    News

    ECB Issues Opinion on Revisions to CRR in Response to COVID Crisis

    ECB published an opinion (CON/2020/16) on amendments to the prudential framework in EU in response to the COVID-19 pandemic.

    May 20, 2020 WebPage Regulatory News
    News

    EBA Assesses Interlinkages Between Recovery and Resolution Planning

    EBA published a report that examines the interlinkages between recovery and resolution planning under the Bank Recovery and Resolution Directive (BRRD).

    May 20, 2020 WebPage Regulatory News
    News

    SRB Publishes Final MREL Policy Under the Banking Package

    SRB published the final Minimum Requirements for Own Funds and Eligible Liabilities (MREL) policy under the Banking Package.

    May 20, 2020 WebPage Regulatory News
    News

    US Agencies Amend Interim Final Rule on Transition Period for CECL

    US Agencies (FDIC, FED, and OCC) published a final rule that makes technical changes to the March 31, 2020 interim final rule that provides a five-year transition period for the impact of the current expected credit loss (CECL) methodology on regulatory capital.

    May 19, 2020 WebPage Regulatory News
    News

    ECB Releases Results of March Survey on Credit Terms and Conditions

    ECB published results of the March 2020 survey on credit terms and conditions in euro-denominated securities financing and over-the-counter (OTC) derivatives markets.

    May 19, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 5208