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The Supervisory Review and Evaluation Process

Supervisors assess the risks banks face and check that banks are equipped to manage those risks properly. This activity is called the Supervisory Review and Evaluation Process, or SREP, and its purpose is to allow banks’ risk profiles to be assessed consistently and decisions about necessary supervisory measures to be taken.

What is the SREP?

SREP results

SREP 2021 aggregate results

Once a year we publish a summary of SREP results for all the banks we supervise directly.

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Pillar 2 requirement (P2R)

We specify how much capital each supervised bank needs to hold to cover the risks it faces.

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Pillar 2 Guidance (P2G)

We expect banks to keep enough capital to withstand stress.

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How do we carry out the SREP?

Supervisors use a single methodology and a set of harmonised tools to assess banks consistently. They focus on banks’ business models, internal governance, risks to capital and risks to liquidity.

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Business model

Supervisors analyse a bank’s business model to better understand its main activities and business areas, the environment in which it operates and its key vulnerabilities.

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Internal governance

Supervisors look closely at how a bank is run, examining its key people, functions, management bodies and committees.

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Risks to capital

Supervisors assess four categories of risk: credit risk, market risk, interest rate risk in the banking book and operational risk.

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Risks to liquidity

Supervisors assess a bank’s ability to cover ad hoc cash needs, such as in times of economic uncertainty when depositors may withdraw much more money than usual.

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What informs the SREP?

Stress tests

Supervisors use stress tests to identify and address banks’ vulnerabilities early on in the SREP process.

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Supervisory priorities

Every year ECB Banking Supervision sets its supervisory priorities that will guide the SREP in the year ahead.

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Risk assessment

Every year ECB Banking Supervision identifies and assesses the risks banks face to determine focus areas for the SREP.

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