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February 07, 2018

ECB published introductory statements by Danièle Nouy and Sabine Lautenschläger of the ECB Supervisory Board at the annual press conference on ECB Banking Supervision in Frankfurt. ECB also published a transcript of the question and answer (Q&A) session with both the members of the ECB supervisory board. They discussed the challenges that banks still face in terms of nonperforming loans (NPLs), Basel III implementation, and Brexit.

During her statement, Danièle Nouy highlights that banks still face a number of challenges and that 2018 offers the ideal opportunity to tackle them. One of the key challenges is reduction of NPLs. To this end, last year, ECB published guidance for banks on how to reduce their NPLs. Cleaning up balance sheets after a crisis is one thing and keeping them clean ahead of future downturns is another. Thus, ECB is working on an addendum to its guidance that will specify how and when ECB expects banks to provision for new NPLs. The draft addendum was subject to a public consultation, which triggered almost 500 comments from 36 counterparties. She highlights that ECB has reviewed the comments and is expected to published the addendum in March. Among other things, ECB will shift the date from which the guidance applies to new NPLs and will make it even clearer that it will follow a case-by-case approach as part of its Pillar 2 framework. She also discussed the progress toward European deposit insurance scheme, or EDIS as the final pillar of the Banking Union and welcomed the EC proposal on this. She concluded that “conditions are as good as they are going to get” and “banks should seize the moment and tackle all the challenges they face.”

Sabine Lautenschläger emphasized the importance of ensuring that Basel III is fully and timely implemented in all countries. To this end, she also discussed the objectives and goals of the targeted review of internal models, or TRIM. She then discussed the challenges faced due to Brexit and highlighted that any bank that wishes to relocate from the UK to the euro area should submit its license application by the end of the second quarter of 2018. So far, eight banks have already taken formal steps to seek a new license while four other banks are planning to significantly extend their activities in the euro area. ECB will continue to closely monitor the Brexit negotiations. She concluded that banks must remain in control of their own risks. “Brexit is just one of the many challenges that banks are facing right now—challenges that they need to address while times are good.”

 

Related Link: Statements and Q&A Transcript

Keywords: Europe, EU, Banking, NPLs, TRIM, Brexit, Basel III, ECB

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