Danièle Nouy, Chair of the ECB Supervisory Board, spoke in Frankfurt about the progress of the European banking supervision over the past three years, along with the path forward. She also stressed on finding a sustainable solution for NPL resolution.
Ms. Nouy highlighted that the European banking supervision has replaced 19 different national supervisory regimes with a single European one and has come much closer to achieving its goals. For instance, since 2014, the correlation between Supervisory Review and Evaluation Process (SREP) scores and supervisory capital requirements has almost tripled—from 26% to 76%. According to Ms. Nouy, “Europe is overbanked” and “the European banking sector needs to consolidate.” In the context of overbanking, she highlighted the positive aspects of the Single Resolution Mechanism (SRM) for banks in Europe, as SRM allows banks to fail in an orderly manner without unleashing a systemic crisis. Mergers and acquisitions are another option to ease the problem of overbanking, according to her. She highlighted that Banking Union has made the cross-border mergers more attractive. “So, it is fair to say that the door has been opened to consolidation.”
She also talked about the issue of high nonperforming loans (NPLs), on which some progress has been made. Earlier this year, ECB Banking Supervision published qualitative guidance to banks on how to deal with NPLs. “With reference to that guidance, we have now scrutinized the plans devised by the banks. And we have started to provide feedback. The situation is very diverse, so we need to assess it on a case-by-case basis and find the appropriate solution for each bank.” A sustainable solution must also ensure that the problem does not reappear. To that end, ECB has published for consultation an addendum to its guidance, setting out expectations from banks in terms of making provisions for future NPLs. The ECB guidance on NPLs provides the basis for a structured dialog with each individual bank. However, the NPL issue needs to be addressed at other levels as well. For instance, “huge differences” exist between euro area countries when it comes to resolving NPLs in court. In some countries, such procedures take considerably longer than in others. National governments must address this by streamlining judicial systems and speeding up court procedures. In a Banking Union, there should be no significant differences in the time it takes to resolve NPLs in court. Out-of-court settlements should also become an instrument in resolving NPLs, added Ms. Nouy. She concludes that it ”requires a joint effort by banks, supervisors, regulators, and politicians to resolve the problem of non-performing loans [NPLs].”
Related Link: Speech
Keywords: Europe, EU, Banking, SREP, SRM, NPLs, EBA
Previous ArticleOSFI Issues Letter on 2016-17 ICAAP and Next ICAAP Submissions
Next ArticleOFR Introduces FSVM and FSI as New Monitoring Tools
PRA published a set of questions and answers (Q&A) covering common queries regarding residential and commercial property valuations, for the purpose of the Capital Requirements Regulation (CRR), during the period of disruption caused by COVID-19 pandemic.
IOSCO proposed updates to its principles for regulated entities that outsource tasks to service providers.
MAS announced that the first phase of the Veritas initiative will commence with the development of fairness metrics in credit risk scoring and customer marketing.
BoE published the Statistical Notice 2020/4 to update the buy-to-let (BTL) Phase 2 and Phase 3 definitions for the Interest Rate Type data item.
FSI published a brief note that examines challenges facing the banking sector as a result of the payment deferral programs put in place to support borrowers affected by the COVID-19 pandemic.
PRA published the policy statement PS14/20, which contains the supervisory statement SS1/20 and the feedback to responses to the consultation paper CP22/19 on expectations for investment by firms in accordance with the Prudent Person Principle, or PPP, as set out in the Investments Part of the PRA Rulebook.
EBA published an opinion following the notification by the French macro-prudential authority, the Haut Conseil de Stabilité Financière (HCSF), of its intention to extend a measure introduced in 2018 on the use of Article 458(9) of the Capital Requirements Regulation (CRR).
As part of a Research Bulletin on the recent policy-relevant work, ECB published an article that examines the lessons learned from past crises for nonperforming loan resolution in the post COVID-19 period.
RBNZ published the financial stability report for May 2020. This review of the financial system in the country highlights that the economic disruption associated with COVID-19 will present challenges to the financial system.
ECB updated the guidance notes for reporting related to the statistics on holdings of securities by reporting banking groups (SHSG).