Sabine Lautenschläger, Member of the ECB Executive Board and Vice-Chair of the ECB Supervisory Board, spoke at the ESE Conference 2017 in Vienna. She examined the achievements, challenges, and the way forward for the banking supervision in Europe. During the discussion, she focused on three issues: the rulebook for banks and how it relates to supervision; the toolbox that supervisors have at their disposal; and the role of the market.
Ms. Lautenschläger discussed creating a level playing field and harmonizing the bank rulebook in the context of differences arising from national options and discretions. She advises that “we must further harmonize the rulebook. Instead of EU Directives, we should rely more on EU Regulations, which can be directly applied in all member states. We should deal with the remaining O&Ds and we should stop passing more and more national laws, especially those which apply to banks that are supervised at European level. Instead, we should strive to cut down on some of these national laws, such as those concerning the reporting requirements that have become redundant as a result of the European Reporting Framework. Scrapping such laws would increase efficiency and reduce costs for both banks and supervisors.”
She highlights that “We have harmonized the main tool of banking supervision: the supervisory review and evaluation process, SREP for short.” However, the supervisory toolbox comprises more than the SREP and there are other things that we need to improve. First, there are tools that are applied in different ways in different countries (for example, on-site inspections at banks). Second, there are tools which exist in some countries but not in others (for example, the moratorium tool and deductions from own funds). Third, there are tools that are part of the European toolbox not once but twice, thus causing problems (for example, the overlap between early intervention tools and standard tools). “To sum up, we still need to work on the toolbox of European banking supervisors. We have to expand, harmonize, and streamline it.”
Ms. Lautenschläger discussed the Single Resolution Mechanism (SRM) and the supervisory approach of ECB and SRB in the resolution process, also highlighting the recent success in this area in Europe. She emphasized the “need to improve the tools that are needed to actually resolve a bank.” Moratorium is one such tool that still needs to be added to the European toolbox, as per Ms. Lautenschläger. Finally, she opines “that only systemically relevant banks will be resolved at European level. All other banks will be subject to national insolvency regimes. It might thus be warranted to harmonize these regimes across Europe to ensure a level playing field. All the things I just mentioned will have an impact on how supervisors assess and react to the risks of banks and the risks of bank failures.”
Related Link: Speech
Keywords: Europe, EU, Banking, Banking Supervision, SRM, SREP, Options and National Discretions, Moratorium Tool, ECB
Previous ArticleFED Governor on Regulatory Reforms in Central Clearing and Liquidity
EBA issued a revised list of validation rules with respect to the implementing technical standards on supervisory reporting.
EBA published its response to the call for advice of EC on ways to strengthen the EU legal framework on anti-money laundering and countering the financing of terrorism (AML/CFT).
NGFS published a paper on the overview of environmental risk analysis by financial institutions and an occasional paper on the case studies on environmental risk analysis methodologies.
MAS published the guidelines on individual accountability and conduct at financial institutions.
APRA published final versions of the prudential standard APS 220 on credit quality and the reporting standard ARS 923.2 on repayment deferrals.
SRB published two articles, with one article discussing the framework in place to safeguard financial stability amid crisis and the other article outlining the path to a harmonized and predictable liquidation regime.
FSB hosted a virtual workshop as part of the consultation process for its evaluation of the too-big-to-fail reforms.
ECB updated the list of supervised entities in EU, with the number of significant supervised entities being 115.
OSFI published the key findings of a study on third-party risk management.
FSB is extending the implementation timeline, by one year, for the minimum haircut standards for non-centrally cleared securities financing transactions or SFTs.