Sabine Lautenschläger, Member of the ECB Executive Board and Vice-Chair of the ECB Supervisory Board, spoke and answered questions at the International Monetary Conference in London. While addressing the audience, she outlined the priorities with respect to the banking supervision.
The four priorities of banking supervision, according to Ms. Lautenschläger, are as follows:
She discussed the global aspects of banking regulations and stated that it is time to finalize reforms of banking regulations, implement them, and see how they work. She suggested focusing on different approaches of application of these rules by supervisors worldwide and learning lessons and best practices from this variety of approaches.
The importance of addressing the potential effects of Brexit is another priority.
Resolving large exposures to nonperforming loans (NPLs) was the third priority on her list. Getting rid of NPLs takes time and effort. In March, a guidance was published for banks on how to deal with NPLs and the supervisors are closely monitoring the strategies banks devise and the progress they make.
The fourth priority is risk management, including internal models. She discussed the launch of the targeted review of internal models (TRIM) and its objectives.
TRIM is intended to harmonize the supervisory treatment of internal models and ensure a level playing field. It is also intended to ensure that the results of internal models are conservative and driven by actual risks, not by modeling choices. This will strengthen trust in the banks’ calculation of risk and, ultimately, in the adequacy of capital buffers.
Related Link: Speech
Keywords: Europe, ECB, Banking, Regulatory Reform, Banking Supervision, NPL, TRIM
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