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October 30, 2018

ECB published its supervisory priorities for 2019, as part of the Single Supervisory Mechanism (SSM) in EU. The supervisory priorities build on an assessment of the key challenges facing supervised banks in the current economic, regulatory, and supervisory environment.

ECB Banking Supervision has identified sources of banking sector risk in cooperation with the national competent authorities, drawing on input from the Joint Supervisory Teams, ECB micro-prudential and macro-prudential analyses, and reports by international bodies. The key drivers of banking sector risks that were identified are: geopolitical uncertainties, the stock of non-performing loans (NPLs) and potential for a build-up of future NPLs, cyber crime and IT disruptions, potential repricing in financial markets, the low interest rate environment, banks’ reaction to new and existing regulations, euro area economic and fiscal conditions, cases of misconduct, developments in real estate markets, structural business challenges, non-bank competition, and climate-related risks. 

To ensure that banks address these key challenges effectively, ECB Banking Supervision has reviewed and streamlined its supervisory priorities. In the light of the outlined risk situation, SSM has set the high-level priority areas for 2019, which include the following:

  • Credit risk, including investigation of real estate exposures and follow-up on NPL addendum and guidance
  • Risk management, including the assessment of banks’ governance procedures, targeted review of internal models, and liquidity stress tests
  • Activities comprising multiple risk dimensions, including development of Brexit policy stance, dialog with banks in preparation for market risk rules

These priority areas are largely continuing from 2018, with the exception of business models as major supervisory activities in this area have now been finalized. Business models will continue to be supervised as part of the Joint Supervisory Teams’ day-to-day supervision, for example, in the context of the Supervisory Review and Evaluation Process, or SREP. For each priority area, a number of supervisory activities will be carried out. The full implementation of these various activities may span more than one year.


Related Link: Supervisory Priorities for 2019

Keywords: Europe, EU, Banking, Supervisory Priorities, Brexit, NPLs, SSM, SREP, ECB

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