Interview with Bloomberg

Interview with Frank Elderson, Member of the Executive Board of the ECB and Vice-Chair of the Supervisory Board of the ECB, conducted by Laura Noonan and Nick Comfort on 17 February 2026

19 February 2026

From the outside, the process around periodic penalty payments for managing climate risk seemed very long. How come?

Since managing climate and nature-related risks was new, we adopted a multi-year approach and stepped up our engagement proportionally, starting with supervisory expectations in 2020, self-assessments and action plans by the banks in 2021 and a review in 2022 to gauge progress. The banks were moving, but we wanted them to move faster. This is why in 2022 we set a deadline for end-2024, with corresponding interim milestones. The first interim milestone of March 2023 – the materiality assessment – was foundational. We have to be, and have been, proportionate. In those cases when we found that the materiality assessment was not up to standard, we gave the banks formal decisions, which meant we then had to give them some more time.

So, did it work and how has the situation evolved?

We have now moved all the banks under our supervision to a situation where, by and large, we find that they can manage these climate and nature-related risks, both physical and transitional. And all 110 banks but two did that without us having to impose a periodic penalty payment. That’s good news. We issued quite a lot of decisions, 32 in total – 22 in the first wave for the materiality assessment, nine in the second and one in the third. But in the end, as regards the first wave, in the extended period they had all but two delivered on time. We’re still in assessment mode for the last two waves. This management of climate and nature-related risks was something new. It takes time to build up expertise, and there were data challenges. My assessment is that our approach of proportionate escalation works. We have seen banks accelerating, which means additional investments, more people and more resources to manage the climate and nature-related risks that more than 90% of the banks now consider material.

More broadly, the ECB was criticised by banks for issuing so many findings and measures that they didn't know which to fix first and which were important.

To a certain extent, this was fair criticism. As part of the reform of the Supervisory Review and Evaluation Process, we went over to what we call a “two-tier system” where we classify our findings. We have four categories. F3 and F4 are the most material ones. F1s and F2s are less material – important enough to share with the banks, but not important enough to actively pursue ourselves. We also have scarce resources and have to be risk-based.

The ECB and the banks have had a fairly constructive relationship, as opposed to the quite adversarial relationship in the United States. Do you worry about that spirit travelling across to Europe?

We want to be a supervisor that isn’t an undue burden on banks. We want to be efficient, effective and risk-based. But it’s also true that we have a legal mandate and expectations on the part of European citizens to deliver on financial stability, on ensuring banks are safe and sound. So if there are findings that need to be addressed, we cannot and will not just stop every year to ask the bank “Could you please?” When there are material holes in the dyke, they need to be repaired in time. We prefer banks to do so on the basis of supervisory dialogue. If they don’t, we proportionally escalate, using, if necessary, all the tools in our toolbox.

In late 2024 you warned banks that they needed improve their risk data aggregation and reporting. Are we at the point where you will impose periodic penalty payments for this matter?

We see banks progressing. Banks do know this is important, but we are not where we need to be: there are still too many banks that have not progressed fast enough. So we will use our escalation ladder, but there are steps in between – the supervisory dialogue, non‑legally binding letters and binding formal letters. I'm not excluding any of those, but we are still going through that process. The use of tools higher up on the escalation ladder, such as periodic penalty payments, is currently neither imminent nor excluded.

On relations with the banks, does the ECB have any strong feelings about the prudential benefits of the bonus cap? The Prudential Regulation Authority did in the UK.

I don't want to comment on other jurisdictions. There is legislation in the EU and in different Member States. You have seen our recommendations to the legislator in the high-level task force report. There are no such recommendations to liberalise national or European laws in this respect. More generally, we truly believe that this is not the time to deregulate, to bring down sound supervisory standards. We think that there is a lot of space to simplify our processes, and we have put a rigorous and broad simplification programme in place to do just that, while maintaining resilience and supervisory standards.

That’s the house view on guardrails, but when the ECB Supervisory Board sits together, how much cohesion is there between countries on this?

Of course, we have healthy debates within the Supervisory Board, healthy debates within the Governing Council. These are all sophisticated people who bring their own experiences and knowledge of their various jurisdictions to the table. And then we came together and published a high-level task force report that, as the Vice-President said, was agreed on unanimously. In the end, this is how we take decisions on many issues; the same goes for the Supervisory Board.

Will the ECB change its guide on leveraged finance as part of the work to update its various guides this year?

When we looked at this whole body of guides, but also “Dear CEO” letters and other publications, we felt it was time to clean up a bit. Can we make some of the documents shorter? Can we maybe retire some of them? Are some of them outdated? Can we make it even clearer that they're not legally binding? Because they are not legally binding. Can we make sure that the wording is completely consistent? The communication around this can be done better. It could be that in one guide or another, there are certain substantive issues that we will take another look at.

On leveraged finance, the most substantive criticism was related to the debt to EBITDA ratio. Could you address that?

It's just too early to say anything of substance on this. We are aware of these debates. The leveraged finance review ran its course and we are still following up with the banks involved. This process is ongoing, so it's too early. But we are obviously aware of this issue and of other issues that have come up in this review. When we look at all these guides, and we also get to this guide, we will remember these issues and we will have to decide whether, and if so how, we would give further guidance.

On simplification, how will on-site inspections change? What does your targeted approach mean in practice?

It means shorter, more focused inspections, shorter reports, better communication during the on-site work with the bank, greater emphasis on the on-site aspect and the joint supervisory team working together. We want to keep the rigour that we are proud of and will continue to base our view of the banks on a combination of inputs from off-site and on-site thematic reviews. But we want to be more agile. Sometimes it will still be the case that there is quite a team for quite some time in a bank, but we think there is room for less “one size fits all”. Maybe sometimes, in terms of remediation, a small, targeted group can go in for some weeks and check in a very focused way whether that one thing has been remedied.

How concerned are you about the risks around synthetic risk transfers?

Certain aspects of synthetic securitisations are risky. It is always risky in a relative sense, if you compare them to more standardised securitisations. We allow them and we look at them, actually faster than we ever did. We are monitoring how this market is growing and whether the inherent risks are manageable. There are rollover risks. It could be that, under certain circumstances, you think that you are no longer exposed and then suddenly you are.

Could there be a policy response like limits to a certain amount of a bank’s balance sheet?

It’s too early to tell.

What’s your expectation for the timing of the decision on how and when to implement the Fundamental Review of the Trading Book (FRTB) in Europe? Does this need to be resolved quickly?

Yes, I do think that it’s important that it’s resolved quickly. Some kind of balance needs to be struck. We want full, faithful and, if possible, timely implementation of Basel. That's still our stated stance generally. Now, it is true that obviously we also need to look at what the rest of the world does. Basel is meant to create a level playing field and, if others don't play ball, we have to think about what that means. That's why we have been understanding of the successive postponements of the FRTB, but we also think that it's important to create clarity for the banks, which is why we have been supportive in our contribution to the Commission’s FRTB proposal.

What do you make of the level of ambition to pursue closer ties in Europe, for example with the capital markets union?

If we want to be masters of our own destiny in Europe – let me just say something a little bit broader here, and that's not a given with some people in the east and some people in the west – then we’d better get our act together fast. This is the time to overcome all kinds of national considerations. This is the time to come together. We have a single currency, we have a Single Supervisory Mechanism. We need to complete the banking union, including the European deposit insurance scheme. We need to complete the capital markets union and the savings and investments union. And I think this is the time to do it. If the generation that came before us could pool their national currencies, then we can do this.

On the issue of generations, were you surprised that Germany is more attached to Commerzbank than they were to the Deutsche Mark?

I would say that it sometimes surprises me that people profess their strong willingness to establish a true single market, and then in the same sentence, without a period, but a comma, start talking about the dangers of cross-border banking consolidation. We are completely neutral when it comes to cross-border or not cross-border consolidation. If the right circumstances are there and if it is executed well, there are many advantages to consolidation. There are very clear and limitative criteria in the law. Those are the criteria, not others, that we look at. We will do our job, but if these criteria met, then that should be the end of the story.

It’s been ten years since the Brexit referendum; where do we stand now as regards what you used to call “incoming banks” that built out their units in the euro area?

Now we just call them banks. By and large this is done, and to our satisfaction. This road has at times been slightly bumpy, but in the end, we found a pragmatic way with all kinds of transition arrangements. We have got to where we want to be. We didn't want empty shells. We wanted a real presence. We wanted risks that are being taken here to be managed here, too. We wanted someone to call here, not at some faraway headquarters.

To come back to climate, what scenario do you currently see as being the most likely?

We have conducted macro and micro stress tests, and we have said that the costs of kicking the can down the road are significantly higher. But we have never said anything about the likelihood of that happening. But I can tell you one thing: the likelihood of a disorderly transition scenario is increasing. It's increasing by the day. If legislators don't legislate, if people start wondering about the EU Emissions Trading System and if they were to tinker with that, they’d be tinkering with our Paris compatibility compliance. If that doesn't only happen in Europe, but in the rest of the world, the likelihood of disorderly scenarios will increase. We need to be science-based. The bells are tolling. Our job is to translate that to our price and financial stability mandates.

Is there an argument for revisiting the green supporting factor to make more of a prudential case?

As a supervisor we have to be risk-based. We have to make sure that banks manage their material risks, including climate and nature-related transition and physical risks. We take the climate and nature crises into account, but obviously we don’t make climate policies – just like we take pandemics, wars and tariffs into account, but don’t make health, defence or trade policies. Banks need to be well capitalised for all these risks, including for climate and nature-related risks. If you mix something which is not risk-based with that, that is not the right way to do it. There are much better and much cleaner policy tools to achieve a transition to Paris compatibility, which are outside our mandate and are in the domain of governments and parliaments, and rightly so.

But you don’t have control over those, so couldn’t you do more?

There comes a point when one has to realise that there are other actors that are also, in terms of democratic accountability, so much better placed. It would be such a stretch. Central banks and supervisors cannot solve all the problems of this world. It would be wrong to try. It would also ultimately hamper our ability to deliver on the things that we are mandated to deliver on. We are well placed to maintain the public goods of price stability, financial stability and safe and sound banks that can play their role in the economy by financing families and firms.