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A loan that looks unlikely to be repaid in full becomes non-performing and will probably generate a loss. Banks protect themselves against expected future losses by booking provisions. But what does provisioning mean in practice, and what is coverage for non-performing loans?
The ECB asks banks to take into consideration the ongoing uncertainty and refrain from paying dividends, or limit the pay-out, until 30 September 2021 to preserve their capacity to lend and to absorb losses. Banks should use their buffers and limit bonuses as much as possible.
Introductory remarks by Elizabeth McCaul, Member of the Supervisory Board of the ECB, at the Florence School of Banking & Finance Online Seminar “Bank Boards and Supervisory Expectations”
Presentation by Edouard Fernandez-Bollo, Member of the Supervisory Board of the ECB, at a virtual meeting of the Working Group Financial Services by Kangaroo Group
Interview with Andrea Enria, Chair of the Supervisory Board of the ECB, conducted by George Syriopoulos on 24 November 2020 and broadcast on 28 November 2020
Interview with Yves Mersch, Member of the Executive Board of the ECB and Vice-Chair of the Supervisory Board of the ECB, conducted by Martin Arnold on 23 November 2020
Interview with Yves Mersch, Member of the Executive Board of the ECB and Vice-Chair of the Supervisory Board of the ECB, conducted by Kai Johannsen and published on 21 November 2020
Blog post by Elizabeth McCaul, Member of the Supervisory Board of the ECB
Summary
Strong credit risk management to avoid bad loans piling up now will maximise value, avoid cliff effects and reduce the risk of procyclical effects, writes Supervisory Board member Elizabeth McCaul. Inaction would disrupt the supply of credit and liquidity and delay the recovery.
By Andrea Enria, Chair of the Supervisory Board of the ECB, and Edouard Fernandez-Bollo, Member of the Supervisory Board of the ECB
Summary
We need to foster the integration of cross-border banking groups to ensure that timely liquidity support is provided within them, Andrea Enria and Edouard Fernandez-Bollo say in our latest blog post. To achieve this, recovery plans could be strengthened by using group support agreements.
By Andrea Enria, Chair of the Supervisory Board of the ECB
Summary
Euro area banks are resilient to the stress caused by the coronavirus crisis, our analysis shows. The assessment of the results justifies our decision to extend our dividend recommendation. Supervisory Board Chair Andrea Enria also clarifies the timeline for banks to replenish capital and liquidity buffers.
Blog post by Yves Mersch, Member of the Executive Board of the ECB and Vice-Chair of the Supervisory Board of the ECB
Summary
The ECB will continue to engage with all banks affected by Brexit to ensure that they achieve their target operating models in a timely manner, says Supervisory Board Vice-Chair Yves Mersch. We will not accept banks attempting to operate as empty shells.
Blog post by Kerstin af Jochnick, Member of the Supervisory Board of the ECB
Summary
How do we ensure that supervision remains effective during the crisis, and which aspects will be crucial in determining the shape of the EU banking sector in the medium term? These are the key questions supervisors must now answer, writes Supervisory Board member Kerstin af Jochnick.
To help companies and the whole economy during the crisis, the ECB and governments have put in place measures to support banks’ lending to firms. These loans help healthy companies cope – but are they also keeping non-viable “zombie” firms alive as critics claim?
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