Streamlining supervision, safeguarding resilience

Stable banks are the foundation of a strong economy. Since European banking supervision was established, banks in the euro area have become more stable and better capitalised, with lower levels of non-performing loans. The current supervisory and regulatory framework has helped the banking sector remain resilient, enabling it to continue providing services to households and firms, including in times of stress.

The achievements since the global financial crisis are a strong foundation. But the environment in which banks are operating is changing fast. As technology changes and the risk landscape evolves, supervision must be responsive and adapt to new challenges to remain as efficient and effective as possible. Banks and supervisors need to have the analytical capacities to address emerging risks.

Against this background, we are working with national supervisory authorities on a comprehensive reform agenda to streamline and simplify European banking supervision, refocusing our resources without compromising banks’ resilience. The four dedicated reform initiatives are outlined in more detail our report, “Streamlining supervision, safeguarding resilience”.

In September 2022 European banking supervision launched an independent expert review of its regular health check for banks – the Supervisory Review and Evaluation Process (SREP). Based on the recommendations from that review, we are making the SREP more efficient and effective, with a greater focus on risk-based supervision. More information on the changes is provided in our report and in the FAQ on the SREP of tomorrow.

The SREP reform builds on earlier decisions and is being implemented over a three-year period (2024-26). Its benefits will therefore evolve over time, and we will monitor and document progress via indicators such as the duration of the SREP cycle, the length and clarity of SREP decisions and information on open findings.

More information on the SREP reform:

SREP reform: towards more efficient and effective supervision ICAAP: enhanced supervisory assessment for stronger capital management in banks New Pillar 2 requirement methodology

In addition to reforming the SREP, we have initiated a second broad set of reforms with the “next-level supervision” project. This project aims to further improve efficiency and effectiveness across all key supervisory activities, while remaining fully risk-focused. As part of the project, we are also increasing our use of digital tools for supervision.

Further initiatives will be launched, including reviewing the application of the proportionality principle in the supervision of small and non-complex credit institutions (SNCIs). We will also review our supervisory guides to ensure that the information they contain is accessible and that they provide maximum transparency on the ECB’s supervisory approaches.

Learn more about the next-level supervision project

The ECB and national supervisors work together to deliver European banking supervision. Joint Supervisory Teams bring together staff from the ECB and national authorities to supervise significant banks, while the national authorities supervise less significant banks under the ECB’s oversight.

To deliver on our reform agenda, we are fostering a risk-based supervisory culture across the entire system, empowering teams to exercise judgement and decide where best to direct supervisory attention. This ensures reforms are implemented consistently and effectively across the banking union.

With a view to enhancing consistency across European banking supervision, we have launched a dedicated initiative to drive cultural change. The focus is on developing a more integrated supervisory culture that is efficient, effective and risk-based. A unified supervisory culture will strengthen our supervision and lead to smoother processes for banks.

Learn more about the supervisory culture initiative

Assessing the effectiveness of supervision is a key element of our reform agenda. But we need more than financial indicators for this, as, for instance, a bank’s financial ratios can improve for several reasons, including better macroeconomic conditions.

European banking supervision is therefore developing methodologies for evaluating supervisory effectiveness in order to foster more outcome-oriented supervision and strengthen accountability.

Learn more about how we’re evaluating supervisory effectiveness

We want supervision to be efficient, effective and always clearly focused on risk. To this end, while we are not a regulator or a legislator, we support the relevant authorities in assessing ways to simplify the regulatory and supervisory framework.

The report on our supervisory initiatives was published at the same time as the recommendations of the ECB Governing Council’s High-Level Task Force (HLTF) on Simplification. The proposals call for legislative changes to simplify regulatory, supervisory and reporting frameworks. Our supervisory initiatives complement these recommendations but can also be carried out independently of them.