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September 28, 2017

Sabine Lautenschläger, Member of the ECB Executive Board and Vice-Chair of the ECB Supervisory Board, spoke at the ESE Conference 2017 in Vienna. She examined the achievements, challenges, and the way forward for the banking supervision in Europe. During the discussion, she focused on three issues: the rulebook for banks and how it relates to supervision; the toolbox that supervisors have at their disposal; and the role of the market.

Ms. Lautenschläger discussed creating a level playing field and harmonizing the bank rulebook in the context of differences arising from national options and discretions. She advises that “we must further harmonize the rulebook. Instead of EU Directives, we should rely more on EU Regulations, which can be directly applied in all member states. We should deal with the remaining O&Ds and we should stop passing more and more national laws, especially those which apply to banks that are supervised at European level. Instead, we should strive to cut down on some of these national laws, such as those concerning the reporting requirements that have become redundant as a result of the European Reporting Framework. Scrapping such laws would increase efficiency and reduce costs for both banks and supervisors.”

She highlights that “We have harmonized the main tool of banking supervision: the supervisory review and evaluation process, SREP for short.” However, the supervisory toolbox comprises more than the SREP and there are other things that we need to improve. First, there are tools that are applied in different ways in different countries (for example, on-site inspections at banks). Second, there are tools which exist in some countries but not in others (for example, the moratorium tool and deductions from own funds). Third, there are tools that are part of the European toolbox not once but twice, thus causing problems (for example, the overlap between early intervention tools and standard tools). “To sum up, we still need to work on the toolbox of European banking supervisors. We have to expand, harmonize, and streamline it.”

Ms. Lautenschläger discussed the Single Resolution Mechanism (SRM) and the supervisory approach of ECB and SRB in the resolution process, also highlighting the recent success in this area in Europe. She emphasized the “need to improve the tools that are needed to actually resolve a bank.” Moratorium is one such tool that still needs to be added to the European toolbox, as per Ms. Lautenschläger. Finally, she opines “that only systemically relevant banks will be resolved at European level. All other banks will be subject to national insolvency regimes. It might thus be warranted to harmonize these regimes across Europe to ensure a level playing field. All the things I just mentioned will have an impact on how supervisors assess and react to the risks of banks and the risks of bank failures.”


Related Link: Speech

Keywords: Europe, EU, Banking, Banking Supervision, SRM, SREP, Options and National Discretions, Moratorium Tool, ECB

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