November 07, 2017

The ECB President Mario Draghi spoke at the second ECB Forum on Banking Supervision. During his speech, he discussed the accomplishments of European banking supervision in three years. He noted, “European supervision has been instrumental in building a stronger and more resilient banking sector. A well-integrated financial sector with sound banks has helped transmit our policy impulses more evenly across the euro area. And it has allowed us to pursue an accommodative policy for as long as necessary, without building up significant financial stability risks.”

The ECB President highlighted that the European banking supervision has brought about a more uniform approach on bank supervision, leading to a more resilient banking sector. The key catalyst for this change—along with the new EU regulations—has been the harmonization of the Supervisory Review and Evaluation Process (SREP). This harmonization has allowed supervisors to converge toward common benchmarks on risk assessment and has helped them consistently link their risk assessments to supervisory capital add-ons and other measures. The total capital ratio of banks supervised by the ECB has increased by more than 170 basis points since early 2015. The quality of capital has gone up as well: the high-loss absorbing component—that is, common equity tier 1 capital—now makes up the largest share of total capital of euro area banks. He also stated that specific weaknesses are also now being addressed, with non-performing loans (NPLs) being the most important issue. Many banks still lack the ability to absorb large losses, as their ratio of bad loans to capital and provisions remains high. Therefore, a joint effort is needed by banks, supervisors, regulators, and national authorities to address this issue, while creating an environment in which NPLs can be effectively managed and efficiently disposed.

He also discussed about the benefits of strong supervision for monetary policy, "All the supervisory efforts have not only produced a more robust banking sector; they have also provided crucial support for our monetary policy since we entered a new easing phase in mid-2014." Stronger supervision is one of the sources for this support. Stronger supervision has helped to contain financial stability risks that may emerge during a long period of low interest rates. Credit risk exposures in bank loan books have declined as monetary policy has eased. Default rates have fallen and forward-looking measures also suggest a decline in credit risk. As part of its SREP, ECB Banking Supervision performs detailed, comparative assessments of bank business models, which feed into the ongoing supervisory dialog between the supervisory teams and banks. Mr. Draghi concluded, "We are now three years into the life of European banking supervision and the track record so far is encouraging. Though the single supervisor is still a young and developing institution, it has in many ways lived up to the high expectations that accompanied its founding. Rigorous and uniform supervision has led to higher levels of capital and a more resilient sector overall."

 

Related Link: Speech

Keywords: Europe, EU, Banking, Banking Supervision, SREP, NPL, Financial Stability, ECB

Related Articles
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
News

OSFI Revises Capital Requirements for Operational Risk for Banks

OSFI is revising its capital requirements for operational risk, in line with the final Basel III revisions published by BCBS in December 2017.

July 18, 2019 WebPage Regulatory News
News

OSFI Consults on Revised Principles for Management of Liquidity Risk

OSFI proposed revisions to Guideline B-6 on the principles for the management of liquidity risk.

July 18, 2019 WebPage Regulatory News
News

ESMA Guidance on Disclosures for Credit Rating Sustainability Issues

ESMA published the technical advice on sustainability considerations in the credit rating market, along with the final guidelines on disclosure requirements applicable to credit ratings.

July 18, 2019 WebPage Regulatory News
News

FASB Issues Q&A on Estimation of Expected Credit Losses by Firms

FASB issued a second question-and-answer (Q&A) document that addresses more than a dozen frequently asked questions related to the Accounting Standards Update No. 2016-13 titled “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.”

July 17, 2019 WebPage Regulatory News
News

US Agencies Delay Enforcing Volcker Rule Restrictions on Foreign Funds

US Agencies (FDIC, FED, and OCC) announced that they will not take action related to restrictions under the Volcker Rule for certain foreign funds for an additional two years.

July 17, 2019 WebPage Regulatory News
News

SRB Announces SRF Receives Cash Injection, Grows to EUR 33 billion

SRB announced that the Single Resolution Fund (SRF or the Fund) received a cash injection of EUR 7.8 billion from 3,186 institutions in 2019, bringing the total amount in the Fund to about EUR 33 billion.

July 17, 2019 WebPage Regulatory News
News

FASB to Propose to Delay CECL Compliance Deadline for Certain Entities

FASB published a summary of the tentative decisions taken at its Board meeting in July 2019.

July 17, 2019 WebPage Regulatory News
News

IMF Publishes Report on 2019 Article IV Consultation with Vietnam

IMF published its staff report in context of the 2019 Article IV consultation with Vietnam.

July 16, 2019 WebPage Regulatory News
News

European Parliament Elects Next President of European Commission

European Parliament elected Ursula von der Leyen from Germany as the first female President of the next European Commission for a five-year term from November 01, 2019.

July 16, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 3476