Developments in banking supervision: the quest for simplification in an ever more complex world

Keynote speech by Patrick Montagner, Member of the Supervisory Board of the ECB, at the AEFR

Paris, 9 September 2025

Over the past few months, banking regulation and supervision have faced scrutiny, by not only supervised banks but also by governments. Regulation and supervision are blamed for supposedly being overly complex and for holding back economic growth by placing excessive demands on financial institutions, particularly on banks, which will be the focus of my remarks today. In the face of the current economic and geopolitical challenges, as well as the profound changes in the financing of the economy, of which the banks are just one part, we need to take a step back to understand the challenges underlying the complexity of this sector and its regulation.

With the 114 largest banks in the euro area under our direct supervision, the European Central Bank (ECB) is fully aware that our task, entrusted to us by the legislator, is to preserve the financial stability that our fellow citizens rightfully expect from us, all the while adapting to constantly shifting risks. In an ever-changing economic and financial world, this supervision cannot stand still.

Let me discuss two fundamental considerations with you today: first, that change is intrinsic to our supervisory activity and second, the reality that regulatory complexity necessarily reflects the growing complexity of the players we supervise.

Banking supervision, an activity constantly in flux

Banking supervision never stands still. It is a constant process of adapting to emerging risks and to changes at supervised banks. At times, this development is marked by major breakthroughs – as was the case in November 2014 when the Single Supervisory Mechanism (SSM) was set up – but adaptation fundamentally remains an ongoing process.

Over the past ten years, our manuals, guides and procedures have been regularly updated. The best example is surely our annual Supervisory Review and Evaluation Process, or SREP for short. This process has undergone numerous revisions since it was established within the SSM in 2015, whereby it gradually integrated lessons from crises, climate risks, cyber risks, for example, or changed in line with regulatory developments.

To further increase efficiency, the SREP underwent an in-depth reform following the publication in 2023 of a report by a group of independent experts.^[1] In that year we thus introduced a multi-year approach that allows us to focus on the most material risks for each bank, rather than reviewing all risks with the same intensity each year. This change is geared to making our supervision more strongly risk-oriented, without weakening our supervisory standards.

This year we also revised the SREP decisions to make them more understandable. Now in a more concise format of around ten pages, with details provided in annexes, they focus on the key messages, such as the prudential requirements and the main risks.^[2] This simplification has already brought tangible results. The number of corrective measures communicated in these SREP decisions decreased from around 700 in 2021 to less than 400 planned for 2025, reflecting our focus on actions that have the greatest structural effect. But banks remain fully responsible for addressing any shortcomings, including those identified outside the SREP.

This dynamic for change is also clearly visible if we compare banking supervision in 1999 to that carried out today. As I’m in Paris today, let’s take France as an example. In 1999 the sector was less concentrated, most institutions had no more than a few hundred billion euro on their balance sheets and operated in an essentially national competitive environment, even if they already had establishments in Europe and elsewhere in the world. Today, with total prudential assets equivalent to more than three times GDP and a presence in many countries, they present a scale of operational complexity that bears no relation to that of 25 years ago.

Though the current French banks are the successors of their 1999 peers, they have completely changed. Their market activities have become more sophisticated. Some of the French banks’ risk models have integrated artificial intelligence, while their operations rely on complex technical systems and perform at speeds unimaginable in 1999. From instant payments to T+1 settlements, from algorithmic trading to digital asset tokenisation, banks now process transactions and face risks that can materialise in real-time, requiring supervisory frameworks capable of matching this operational velocity.

This transformation of European banks obviously requires us to develop our supervisory methods in parallel. We cannot use the conceptual tools of 1999 to supervise institutions in 2025, no more than we could analyse banks’ climate and nature risks under the interpretative framework used during, and in response to, the subprime crisis. Whereas we used to analyse credit portfolios over cycles of no more than a few years, we now need to integrate much longer-term climate scenarios. I would add, however, that this development does not mean that old risks have disappeared or that the regulatory response to them is becoming pointless or obsolete.

However, this necessary development should not lead us to blindly accept any form of complexity. Instead, our role as supervisor involves identifying and reducing unwarranted complexity, especially within our supervisory processes, as well as complexity resulting from regulatory fragmentation or obsolete provisions, while preserving the resilience of the banking system.

Regulatory complexity reflects banks’ complexity

The current regulatory complexity stems from a pressing societal need. Certain criticisms notwithstanding, our fellow Europeans expect rules and protection. They want to know that their deposits are safe, that their funds will be available at all times, that banks’ risks are under control, and that the lessons learned from previous crises have been incorporated into supervisory tools.

This call for protection means that the rules have to be adapted to take account of each specific context. The particularities of each situation, in either a regional retail bank or systemic institution with an international footprint, require a level of regulatory granularity that may seem complex but which reflects the actual diversity of Europe’s banking landscape.

It should also be borne in mind that neither the government nor the supervisor makes the laws, but rather the legislator. This democratic European process results in parliamentary compromises, exemptions and adjustments. Each special dispensation, sectoral adaptation or proportionality measure reflects an often legitimate political trade-off between different requirements, namely financial stability, competitiveness and specific national characteristics. In a single market where the free movement of capital is generally the rule, common standards guarantee the same level of protection for all European savers, whether they live in Chambéry, Sienna or Wiesbaden. However, this does not prevent Member States from sometimes allowing national rules to remain in place as long as there are no conflicting EU rules.

In addition to binding regulations, we publish guidance to clarify our supervisory approach towards prudential rules. Banks rightly ask us to ensure that our supervision is predictable and transparent. As a result, we publish guides, guidelines and FAQs to help clarify our approach. One concrete example of this is the fast-track process that we are currently developing to assess significant risk transfers in securitisation transactions: we are substantially reducing the time taken to process transactions that are sufficiently straightforward, but this faster processing time goes hand-in-hand with a more detailed and precise definition of eligibility requirements. Paradoxically, procedural simplification therefore requires more detailed guidance to ensure the transparency of our assessment criteria. And the success of this fast-track process will ultimately depend on banks' ability to structure securitisation transactions in a sufficiently standardised manner.

Conclusion

The message I would like to pass on to you today is based on a tricky yet essential balancing act.

On the one hand, we can still simplify things further, and we as supervisors are listening and adapting to the legitimate concerns being raised. Our task is to identify and reduce undue complexities, whether they result from regulation – due to layering, fragmentation or obsolete provisions – or from our own supervisory practices, which we can simplify by drawing on our own experience. We can still revise certain rules, streamline certain procedures and clarify certain expectations. This continuous improvement is an integral part of our mission and our remit.

On the other hand, we cannot ignore the fact that banks’ complexity and constantly changing risks require a certain type of vigilance. The challenges we face, such as the digital transformation, climate risk and geopolitical developments, do not lend themselves to simple solutions because, by their very nature, they are not simple problems.

The European banking sector’s resilience in recent years has shown that strong regulation and supervision are essential safeguards. Weakening them would risk opening the door to a future systemic crisis. This is the reason why we are vigilant, and it legitimises both our existence as a supervisor and our supervisory requirements. It also explains why we are constantly adapting.

The simplification we must seek does not mean that we should ignore the complexity of the real world. Instead, it must enable us to deal with this complexity in a more efficient, transparent and proportionate way. It is up to us to simplify our supervisory practices without diminishing their impact.

It is in this spirit that we will continue to develop our practices while remembering that our main mission is to protect Europe’s financial stability and, in so doing, protect the safety of Europeans’ savings and their trust in our financial institutions.

Thank you for your attention!