Streamlining supervision, safeguarding resilience: reforming European banking supervision

16 December 2025

By Claudia Buch, Chair of the Supervisory Board of the ECB, and Sharon Donnery, Member of the Supervisory Board of the ECB

European banks are operating in a complex environment characterised by evolving financial and operational risks and rapid digitalisation. To remain resilient and competitive, banks need to be adaptable, with strong governance, forward-looking risk assessments and sound risk management. Resilient banks, in turn, provide the financial services households need and the stable financing that enables firms to invest and create jobs. This underpins sustainable growth.

Banking regulation and supervision need to be adaptable too. Last Thursday, 11 December 2025, the ECB published the report of the Governing Council’s High-Level Task Force on Simplification, which made 17 recommendations for simplifying the regulatory, supervisory and reporting framework for European banks.^[1]

The Task Force’s recommendations concern possible changes to the EU legislative framework and have been presented to the European Commission for its consideration.

But legislative change takes time. Already now, there are changes we can introduce, within existing legislation, to reduce undue complexity and allow supervision to focus on the most material risks. These changes are the subject of a second ECB report, Streamlining supervision, safeguarding resilience, which was also published last Thursday. This report documents the ECB’s ongoing supervisory reform agenda to enhance efficiency, effectiveness and risk focus. This agenda rests on four complementary initiatives:

1. Reform of the Supervisory Review and Evaluation Process (SREP): at the heart of European banking supervision is the SREP – the annual health check where supervisors form a comprehensive view of the resilience of individual banks. It looks at banks’ business models, governance, risk controls, and capital and liquidity strength, guiding any supervisory actions that may be needed. Over the past two years, we have streamlined the SREP with more efficient processes, more focused risk assessments and clearer communication of key messages to banks. Joint Supervisory Teams (JSTs) remain the anchor for all our interactions with banks, and we ensure that all other supervisory activities are closely coordinated.
2. Next-level supervision: besides the SREP, the ECB performs a wide range of essential supervisory tasks. These include assessing banks’ internal risk models, reviewing capital plans, evaluating whether senior managers are “fit and proper”, and carrying out on-site inspections. These processes address key aspects of banks’ safety and soundness – but they can also be resource-intensive and operationally complex. After ten years of experience with the Single Supervisory Mechanism (SSM), we are now streamlining and digitalising many of these processes. This will reduce unnecessary administrative costs, simplify decision-making and allow supervisors to focus on the most material risks.
3. SSM supervisory culture initiative: banking supervision ultimately depends on the people who carry it out. Over the past decade, supervisors across the ECB and national competent authorities have built a strong, collaborative system grounded in common standards and shared purpose. Building on this foundation, a supervisory culture initiative launched in February 2025 supports supervisors in adapting their daily work. It promotes a common understanding of risk-based, integrated and effective supervision, and it provides the tools, training and collaborative structures to help teams work even more cohesively.
4. Assessing supervisory effectiveness: we have a clear mandate – to keep banks safe and sound – and we have a range of supervisory tools we can use to achieve this in a proportionate manner. But measuring the impact of our supervision is not easy. The performance and resilience of banks depend on many factors beyond the control of supervisors, and supervisory tools might differ in their effectiveness. For that reason, we track the efficiency, effectiveness and risk focus of our work and analyse the different factors that influence banks’ resilience.

We will provide updates on the progress on these reforms in the ECB Annual Report on supervisory activities. We will communicate key milestones of the reform agenda as they are reached so that stakeholders can follow how the reforms are being implemented in practice.

The ECB’s supervisory reform agenda reflects extensive feedback from a wide range of stakeholders, and it is designed to bring tangible benefits. For banks, more efficient processes and clearer communication translate into lower supervisory compliance costs and better guidance on where remediation is expected. For the public and policymakers, the reforms strengthen the ECB’s ability to deliver on its mandate, while further enhancing transparency and accountability. And by upgrading our data infrastructure, we will be able to support analysts and researchers with more consistent, higher-quality information.

The reforms improve the way banks interact with supervisors throughout the supervisory cycle – from ensuring strong governance and efficient information sharing to sharpening risk assessments and building resilience. The following case studies provide examples of these reforms. The full details are set out in our report Streamlining supervision, safeguarding resilience.

Strong governance: fit and proper assessments

Banks need strong governance to navigate an increasingly complex risk environment, which requires responses to different adverse scenarios and forward-looking risk assessments. Strong governance provides the framework within which risks are identified, assessed and addressed in a timely and consistent manner.

Strong governance, in turn, requires members of management bodies who are suitable for their roles. The ECB carries out fit and proper assessments to check that board members and other key decision-makers meet relevant criteria in terms of experience, integrity, reputation, conflicts of interest, time commitment and the collective suitability of management bodies.

Fit and proper assessments account for about half of all our supervisory decisions. According to the joint European Securities and Markets Authority (ESMA) and European Banking Authority (EBA) Guidelines, as a competent authority we should set a maximum of four months to deliver these assessments.^[2] We are already delivering faster – the average processing time was reduced from 109 days in 2023 to 97 days in 2024, thanks to digital tools and a streamlined decision-making procedure.

But we are going a step further by improving the way renewal cases are handled. In 2024 and 2025, about one in ten of these assessments concerned the renewal of a mandate – where a board member who has already been approved by the ECB is reappointed to the same position in the same bank. In such cases, much of the relevant information for the assessment is already available to supervisors.

To better handle renewal cases, we are making better use of IT tools and refining the fit and proper questionnaire, so that assessments can concentrate on what has changed since the previous decision. This approach allows supervisors to rely more heavily on information from past assessments, while remaining fully compliant with national legal requirements. The impact will be tangible for banks and supervisors alike. Turnaround times will become shorter and more predictable, without detracting from the core objective of fit and proper assessments – ensuring that key decision-makers in banks remain suitable for their roles.

Forward-looking risk assessments: streamlining stress test data templates

Information sharing plays a major role in how banks interact with supervisors: banks send us data, we analyse it, and we give feedback that helps guide future actions.

One of the biggest data exercises is the EU-wide supervisory stress test, which is a key tool for forward-looking risk assessments. Stress tests are designed to check how banks would cope with a severe economic shock. But running them is extremely data-intensive. In a typical EU-wide exercise, each bank needs to provide a very large number of data points. Preparing these submissions requires a considerable amount of effort within banks, and the quality assurance performed by supervisors is similarly complex.

This is why we are working closely with the EBA to streamline and reduce the size of the stress test data templates, with the aim of integrating them into the regular reporting by banks.

Today, the stress test data templates are not fully aligned with the regular supervisory reporting framework. Because the two systems do not match perfectly, banks often have to reformat or reproduce data they already report. This creates inefficiencies and inconsistencies and complicates the data quality assurance process. In the 2025 stress test, the ECB had to perform more than 2,200 data quality checks, around 40% of which were simply to reconcile stress test data with regular supervisory reporting. Once the two systems are more closely aligned, many of these checks will no longer be needed.

This will create benefits for banks in terms of less complex and more stable data requirements for stress-testing purposes and, as a result, lower compliance costs.

Safeguarding resilience: streamlined approvals for routine decisions, focusing on the areas of greatest risk

Safeguarding resilience is key for banks to serve the economy and remain competitive. Supporting banks’ resilience requires supervisors to focus on the most relevant areas of risk and ensure that banks remain well capitalised. Some related supervisory decisions have a low impact on resilience, while others require deep analysis as they could materially affect a bank’s financial situation. By streamlining and simplifying standard processes, we can dedicate more time and expertise to high-risk cases, which ultimately enhances the resilience of the system as a whole.

One example is the approval of share buybacks. When a bank repurchases its own shares, its capital decreases. Supervisors therefore need to check that the bank will still have sufficient capital to meet regulatory requirements and to absorb losses under stress.

Some share buybacks entail relatively low risks – when the bank is adequately capitalised, has a prudent capital plan and when the buyback is small relative to its capital buffers. Although risks are limited in such cases, the current approval process is rather lengthy and paperwork-heavy. We are thus introducing a fast-track process to simplify procedures and allow supervisors to focus on material risks and complex cases. From January next year, buyback applications can be submitted through a standardised template that includes built-in data checks. This will enable supervisors to automatically extract key information – such as how the buyback affects the bank’s capital projections – and check eligibility for the fast track.

Importantly, eligibility for the fast-track route is strictly risk‑based. Only adequately capitalised banks with credible and prudent capital management qualify. Deeper scrutiny is applied to higher‑impact or more sensitive cases – for example, where the buyback is large relative to the bank’s capital buffers, where the capital plan relies on optimistic assumptions or where the bank is already under tighter supervisory scrutiny. In these cases, supervisors will ask for additional information and conduct more in‑depth reviews.

With the fast-track process, turnaround times will be shorter compared with manual processing, and administrative costs will be lower thanks to the standardised template. Ultimately, faster and clearer decisions on own funds transactions will give banks greater predictability, while prudence and supervisory consistency will be preserved through clear safeguards.

Another example of streamlined approvals is how we review and approve banks’ internal risk models – the models that banks use to estimate the risk weights of their loans and how much capital they need to buffer potential unexpected losses. About 70 of the 113 banks supervised by the ECB use this internal model approach. Banks that are not permitted to use internal models have to calculate risk weights using a standardised approach that is normally more conservative.

In any given year, we take around 100 decisions related to material model changes and approvals. The vast majority of these decisions are triggered by banks’ requests to materially change one of their internal models. These updates affect how the bank manages its risks and plans its capital. Currently, addressing these model change requests uses almost all of the supervisory resources available for model investigations, leaving very limited room for investigations launched on our own initiative in areas of potential concern.

During the supervisory assessment and approval process, banks often have to maintain several versions of their models in parallel – the old one for regulatory use and the new one under assessment – which creates costs and operational complexity.

Future approvals of model changes will be faster and more risk-based, while ensuring that risk-weighted assets calculated using internal models remain adequate. Banks will be allowed to implement material model changes in their systems earlier than is currently the case. However, we will continue to grant permission to realise material capital gains only after a thorough assessment and confirmation of the regulatory compliance of the model change. Where relevant, supervisory safeguards will be applied to ensure an adequate level of own funds requirements.

Thanks to earlier implementation, banks may no longer need to maintain several model versions in parallel during the approval process, cutting operational complexity and costs. At the same time, supervisory resources will be redeployed towards higher risk areas. In particular, supervisors will focus more on model changes with significant capital impact, on material models displaying idiosyncratic issues or outlier behaviour, and on models that have not been subject to review for an extended period of time. This approach will support more targeted thematic reviews to assess potential weaknesses arising from a changing macroeconomic environment or new regulatory requirements. Randomised deep dives will complement this framework to mitigate the risk of supervisory arbitrage.

Improvements in the way models are approved will also come from the EBA.^[3] Its review of the relevant regulatory technical standards is expected to reduce the number of changes requiring permission from supervisors and to introduce more proportionate methods for assessing them.

Taken together, this means more streamlined and more risk-based model approvals.

Conclusion

A fast-changing environment, evolving risks and changing patterns of competition require resilient, well-capitalised and adaptable banks. Undue complexities and frictions need to be removed – leaving supervisors and banks to focus on the vulnerabilities and risks that matter most. We are reducing unnecessary costs and we are better integrating and digitalising different processes to create a more efficient supervisory environment.

We are not simplifying for simplification’s sake. Rather, the reforms are strengthening our supervisory effectiveness and risk focus. Maintaining resilience is and will remain the guiding objective of our work. This is what the reform agenda of European banking supervision is about: removing procedural complexity that may hinder us from reaching our supervisory goal of protecting the safety and soundness of banks and the stability of the financial system.

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