As simple as possible, but not simpler

8 September 2025

By Sharon Donnery, Member of the Supervisory Board of the ECB

Simplification is the word on everybody’s lips – but who is actually doing it? At the ECB we don’t just talk about simplification. We are actively delivering on it with smarter tools, faster approvals and a sharper focus. And we are keeping people informed of these efforts with a new page on our website that showcases our concrete initiatives to make European banking supervision more streamlined, efficient and effective.

Solid foundations

In spring 2023, nearly a decade on from the start of European banking supervision and amid renewed banking stress, an independent expert panel confirmed that ECB Banking Supervision had established itself as an effective and forward-looking supervisory authority.^[1]

Our strong track record is reflected in a resilient European banking sector, as demonstrated during the COVID-19 pandemic and the banking turmoil of March 2023. In its most recent Financial Sector Assessment Program, the International Monetary Fund also concluded that the euro area financial system has shown resilience in the face of multiple shocks.^[2]

However, in a rapidly evolving environment, supervision must continue to adapt. Becoming more efficient, effective and risk-focused is crucial if we are to meet new challenges, including the digitalisation of finance and heightened geopolitical risks, within the constraints of finite resources.^[3]

These goals are the focus of our next phase of supervision. But let’s be clear: they must not come at the cost of resilience. Resilience remains central to our mandate to ensure the safety and stability of the European banking system.

Many are calling for simplification. But what does this really mean? It means making supervision more transparent – and therefore simpler to understand – more proportionate and more efficient, while safeguarding the resilience we have worked so hard to build. We are proving that simplicity and strength can go hand in hand. Simplification must not entail weakening the framework and exposing the banking system – and ultimately the European public – to renewed dangers and risks.

Reforming the SREP

After the report of the independent expert panel, we launched a comprehensive reform of the Supervisory Review and Evaluation Process (SREP) – our yearly health check on banks. This reform has been a key part of our simplification efforts. At its heart, the new SREP is about making supervision more targeted, efficient and risk-based, and ensuring better integration with other supervisory activities.

To this end, we have introduced a multi-year assessment approach, under which certain risk areas within the annual SREP are assessed over a multi-year horizon tailored to each bank’s specific risk profile. This allows supervisors to devote more time to more material or emerging risks, ensuring more effective and proportionate supervision. At the same time, we have maintained robust benchmarking to support meaningful cross-bank comparisons.

We are also enhancing our supervisory planning with more closely integrated reviews, on-site inspections and assessments. This means that different supervisory activities are better aligned and complement each other, avoiding duplication of effort for both banks and supervisors.

For example, under the multi-year approach, Joint Supervisory Teams can plan the assessment of individual SREP components by linking insights from on-site inspections and thematic reviews performed during the year: all the information is, as a result, better integrated into the yearly holistic SREP conclusion. And we inform banks of our plans at the start of each supervisory cycle so that they can allocate their resources accordingly.

Crucially, supervisors will continue to focus intently on identifying the root causes behind issues. When shortcomings arise, we will use the full supervisory toolkit, including enforcement measures, to ensure timely remediation.

A new tiered approach for the follow-up to findings and measures ensures that serious issues trigger increased supervisory engagement, while relying primarily on banks’ internal governance structures to actively manage less critical matters. This empowers supervisors to direct their efforts towards significant risks and vulnerabilities.

Clearer, more targeted communication with banks is another vital improvement. As of this year, SREP decisions are being streamlined to focus on only key concerns and supervisory measures. They will also be delivered earlier and supported by a timely and focused dialogue with banks.

We are also refining our methodology for determining Pillar 2 requirements. Initial testing has delivered promising results, and we are now focused on fine-tuning the methodology to ensure it is ready for implementation in the 2026 SREP cycle. The new approach is less procedurally complex and will make it easier for banks to understand and act on Pillar 2 outcomes.

Underpinning all these reforms is our ongoing investment in IT platforms and analytics, which is enhancing risk detection capabilities, improving efficiency and reducing administrative burdens. Secure and transparent communication is now easier than ever thanks to upgraded digital channels.

The SREP reform is already delivering results:

• The number of new SREP measures is expected to decrease from around 700 in 2021 to below 400 in 2025, reflecting the progress in streamlining SREP decisions so that they are used to communicate severe findings or escalate those that have not been adequately addressed by the bank. Less severe findings and measures or those that require immediate action will instead be issued separately in an ad hoc operational act (remediation) or ECB decision (requirement). These developments do not indicate a change in supervisory focus or a reduction in supervisory attention. Banks will still need to follow up on all measures, irrespective of whether these were communicated in their new SREP decision, in an operational act or through another channel.
• Similarly, the overall length of SREP decisions will be reduced. Banks will be informed of their SREP outcome, key concerns and requirements/recommendations in a concise letter, with the main body expected to be around ten pages long on average. Complementary information will be provided in the annexes. This new, streamlined format aims to enhance transparency and help banks more easily understand their SREP outcomes, providing especially material gains for larger and more complex banking groups.
• As a result of the more efficient SREP, we now aim to conclude our annual assessment by the end of October rather than by the end of the year. This means banks receive their decisions earlier and thus benefit from having more time to adjust their strategies accordingly.

Next-level supervision: reforming other supervisory activities

Simplification doesn’t stop with the SREP: we are streamlining supervisory activities across the board with the aim of further increasing efficiency, effectiveness and risk focus.

1. Improving decision-making and harnessing digitalisation: We aim to streamline supervisory decisions using digital tools, delegation and risk-based, fast-track processes, reducing processing times while maintaining high quality and consistency.
2. Internal models: We are exploring more proportionate approaches and encouraging simplification in the internal models landscape in order to accelerate approvals and reduce unnecessary complexity.
3. Stress testing: We are reducing the burden of stress testing with agile, top-down analyses that support supervisory judgement while maintaining robust bottom-up input where needed.
4. Capital-related decisions: We are working to make capital-related supervisory processes more risk-based – for instance the approval of share buy-backs – and we are providing faster channels for more standardised cases, in order to provide clearer expectations and quicker outcomes for banks.
5. Reporting: We are identifying redundancies, simplifying reporting requirements, promoting proportionality and partnering with banks, all of which will improve data quality and reduce unnecessary costs. Together with the Single Resolution Board, for example, we have developed a joint liquidity reporting template to avoid duplications.
6. On-site inspections: We are also enhancing our on-site inspections by integrating them more closely with our broader supervisory activities and sharpening their focus on the most material risks.

These efforts are already yielding tangible results:

• Fit and proper assessments, which make up the bulk of ECB decisions, now take an average of 97 days – well below the 120-day target set by European guidelines.
• A new fast-track process for simple securitisations has been tested in the first half of 2025. This new process will cut approval times from three months to just ten working days. While we are finalising the new process, it is up to banks to carry out sufficiently simple securitisations to ensure that it can be widely used going forward.

Assessing the effectiveness of supervision

We are making our supervision more effective by adapting our actions to the evolving risks in Europe’s banking sector. The annual risk assessment and setting of the ECB’s supervisory priorities, along with the integrated planning process, ensure that our supervisory activities remain aligned with the changing risk landscape in the banking sector. We have now also integrated a regular assessment of supervisory effectiveness into our annual planning process, building on a recent pilot exercise. This approach places a strong focus on measurable outcomes, ensuring that our efforts remain results-oriented and impactful. By analysing the outcomes of our supervisory actions and addressing vulnerabilities, we create a continuous feedback loop that strengthens European banking supervision and informs its overall strategy. And the new tiered approach for following up on findings and measures is another powerful tool that will allow us to focus more effectively on the risks and issues that matter most. Ultimately, all this work is driven by a clear purpose: to ensure that the banks we supervise remain safe and sound for the benefit of European citizens.

Fostering a risk-focused supervisory culture

We are also nurturing a risk-based and strong supervisory culture. We are running workshops to support our teams in focusing on the most important risks and structuring their work in the most impactful way. We have also streamlined our priorities to sharpen our risk focus. And we are identifying and sharing best practices from across the system to encourage greater integration and a more proactive supervisory approach. All of this is helping us to foster a culture that prioritises risks and supports effective and streamlined supervision.

Finally, ECB Banking Supervision is also contributing to the ECB’s High-Level Task Force on Simplification, which is looking into potential areas where the European prudential regulatory, supervisory and reporting framework could be simplified.

We invite you to explore our new web pages on simplification and on geopolitical risk to see exactly how the ECB is turning words into action and making banking supervision as simple as possible, but not simpler, to make sure banks are able to stay resilient and are well prepared to manage risks in their portfolios.

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