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
BoE published a statistical notice (Notice 2020/9) explaining the approach for treatment of payment holidays on the profit and loss return or Form PL.
BoE updated the known issues document for the statistical reporting Forms AS and FV.
FED announced individual capital requirements for 34 large banks and these requirements go into effect on October 01, 2020.
SRB published a set of documents to give operational guidance to banks on implementation of the bail-in tool.
BIS published an update on the G20 TechSprint Initiative, which was launched in April 2020 and aims to highlight the potential for technologies to resolve regulatory compliance (regtech) and supervisory (suptech) challenges.
OSFI published a letter that provides an update on the milestones for the implementation of the IFRS 17 standard on insurance contracts.
EBA updated the report on the implementation of selected COVID-19 policies.
The Financial Stability Institute (FSI) of BIS published a brief note that examines the supervisory challenges associated with certain temporary regulatory relief measures introduced by BCBS and prudential authorities in response to the COVID-19 pandemic.
BCBS is consulting on the principles for operational resilience and the revisions to the principles for sound management of operational risk for banks.
BoE updated the reporting template for Form ER as well as the Form ER definitions, which contain guidance on the methodology to be used in calculating annualized interest rates.