ECB Sets Supervision of Climate Risk Management by Banks as Priority
The European Central Bank (ECB) Banking Supervision published its 2022 annual report, which sets out updated supervisory priorities for 2023-25 to address immediate risks from the current environment. In another development, the Single Resolution Board (SRB) signed cooperation arrangements with Australia, Argentina, and New Zealand regarding the exchange of information and cooperation related to bank resolution planning and how that is implemented for banks with cross-border operations.
The Annual Report presents the work of ECB Banking Supervision in the year under review as well as its updated supervisory priorities for 2023-25. During the review period, ECB focused its supervisory efforts on ensuring that banks emerge healthily from the pandemic, seize the opportunity to address structural weaknesses via effective digitalization strategies and enhanced governance, and tackle emerging risks, including climate-related and environmental risks and information technology and cyber risks. The supervisory priorities for 2023-25 mainly focuses on three different areas including strengthening resilience to the immediate consequences of macro-financial and geopolitical shocks, addressing digitalization challenges and strengthening management bodies’ steering capabilities, and stepping up efforts in addressing climate change. The key planned supervisory activities of the ECB Banking Supervision are as follows:
- Regularly monitor shortcomings in credit risk management, including bank exposures to vulnerable sectors
- Address the lack of diversification of funding sources and deficiencies in funding plans. Supervised institutions will be asked to develop, execute and adjust as needed a sound and reliable liquidity and funding plan, covering exit strategies and mitigation of rollover risks and concentrations in funding structures
- Develop and implement sound digital transformation strategies
- Review banks’ outsourcing arrangements and cybersecurity measures and conduct target reviews and on-site inspections to follow up on any identified deficiencies
- Identify and address deficiencies in management bodies’ functioning and steering capabilities, risk data aggregation and reporting
- Follow up on the deficiencies identified in the 2022 climate risk stress test and thematic review, monitoring banks’ progress and taking enforcement actions, if necessary, to ensure full alignment with its expectations by the end of 2024
Related Links
Keywords: Europe, EU, Banking, ESG, Climate Change Risk, Supervisory Priorities, Governance, IT Risk, Cyber Risk, Operational Resilience, Digitalization, Credit Risk, Liquidity Risk, Reporting, Climate Stress Test, Resolution Planning, Cross-Border Activities, SRB, ECB
Featured Experts
James Partridge
Credit analytics expert helping clients understand, develop, and implement credit models for origination, monitoring, and regulatory reporting.
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Previous Article
OJK Assesses Impact of Silicon Valley Bank, Issues Other UpdatesRelated Articles
EBA Finalizes Templates for One-Off Climate Risk Scenario Analysis
The European Banking Authority (EBA) has published the final templates, and the associated guidance, for collecting climate-related data for the one-off Fit-for-55 climate risk scenario analysis.
EBA Mulls Inclusion of Environmental & Social Risks to Pillar 1 Rules
The European Banking Authority (EBA) recently published a report that recommends enhancements to the Pillar 1 framework, under the prudential rules, to capture environmental and social risks.
BCBS Consults on Disclosure of Crypto-Asset Exposures of Banks
As a follow on from its prudential standard on the treatment of crypto-asset exposures, the Basel Committee on Banking Supervision (BCBS) proposed disclosure requirements for crypto-asset exposures of banks.
BCBS and EBA Publish Results of Basel III Monitoring Exercise
The Basel Committee on Banking Supervision (BCBS) and the European Banking Authority (EBA) have published results of the Basel III monitoring exercise.
PRA Updates Timeline for Final Basel III Rules, Issues Other Updates
The Prudential Regulation Authority (PRA) recently issued a few regulatory updates for banks, with the updated Basel implementation timelines being the key among them.
US Treasury Sets Out Principles for Net-Zero Financing
The U.S. Department of the Treasury has recently set out the principles for net-zero financing and investment.
EC Launches Survey on G7 Principles on Generative AI
The European Commission (EC) launched a stakeholder survey on the draft International Guiding Principles for organizations developing advanced artificial intelligence (AI) systems.
ISSB Sustainability Standards Expected to Become Global Baseline
The finalization of the two sustainability disclosure standards—IFRS S1 and IFRS S2—is expected to be a significant step forward in the harmonization of sustainability disclosures worldwide.
IOSCO, BIS, and FSB to Intensify Focus on Decentralized Finance
Decentralized finance (DeFi) is expected to increase in prominence, finding traction in use cases such as lending, trading, and investing, without the intermediation of traditional financial institutions.
BCBS Assesses NSFR and Large Exposures Rules in US
The Basel Committee on Banking Supervision (BCBS) published reports that assessed the overall implementation of the net stable funding ratio (NSFR) and the large exposures rules in the U.S.
