Supervision Newsletter August 2019
Interview
"There is no room for complacency"
Margarita Delgado, Deputy Governor of the Banco de España and ECB Supervisory Board member, talks about her unique experience in European banking supervision, the progress made and challenges for European and Spanish banks, and fostering women’s leadership.
Full interview
In Focus
Brexit: stepping up preparations
A hard Brexit in mid-April was averted but a no-deal Brexit on 1 November is still a very real possibility. While the risks to overall euro area financial stability would be manageable, the ECB expects banks to continue preparing for all possible contingencies.
Profitability numbers are looking up, but not enough
The profitability of European banks improved slightly in 2018 but this does not ease supervisory concerns, for two reasons. First, profitability levels are still low. Second, profitability, when expressed in numbers, only tells part of the story.
On-site inspections 2018: key findings
About 160 on-site inspections were conducted in banks in 2018. An in-depth look shows that the key findings related to credit, governance and IT risks. Other prominent risk areas included market risk, interest rate risk in the banking book, capital risk and liquidity risk.
Overall recovery capacity: getting it right
Overall recovery capacity – the extent to which a bank can restore its capital and liquidity in crisis situations – is a good indicator of a bank’s resilience. It is included in banks’ recovery plans and must be based on realistic calculations and accurate reporting.
A closer look at the time commitment of non-executive directors
Non-executive directors play a crucial role in banks' governance. They should oversee, monitor and challenge managers to test the effectiveness of internal controls and governance structures. For this, they need to make a sufficient time commitment.
ECB and NCAs: a productive partnership for LSI supervision
Five years into European banking supervision, the cooperation between the ECB and the national supervisory authorities has gained momentum. This close collaboration helps when a country is facing challenges in its LSI banking sector.
Key data
Asset quality up, but return on equity down in Q1 2019
The aggregate non-performing loans ratio of euro area banks continued to decrease in Q1 2019, to 3.67%. This compares with 4.70% a year earlier. However, the return on equity also decreased in Q1 2019, to 5.76% at the end of the period, a decline of 0.85 percentage points. This decrease was driven by lower aggregate net profit and the increase in banks’ total equity.
Did you know...
…that anyone can report a suspected breach of the rules and regulations of European banking supervision to the ECB via the breach reporting mechanism (whistleblowing process)? Any person who has reasonable grounds to believe that a bank or supervisory authority has breached European Union law in areas within the ECB’s remit can report this directly – and anonymously if so desired – to the ECB. In 2018 the ECB received 124 breach reports, an increase of almost 40% on the previous year. Most of the alleged breaches related to governance issues. The ECB followed up with various measures that included conducting internal assessments, requesting internal audits, asking for documents/explanations or conducting on-site inspections.
Upcoming Events
- 3 September 2019
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Andrea Enria to attend the 2019 ECB Legal Conference
The Chair of the Supervisory Board will chair a panel on close cooperation in the SSM.
- 4 September 2019
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European Parliament – regular hearing of Supervisory Board Chair Andrea Enria
The Chair will discuss current issues related to banking supervision with the members of the Economic and Monetary Affairs Committee at the European Parliament.
- 26 September 2019
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Andrea Enria at the Annual Conference of the European Systemic Risk Board
The Chair will elaborate on the future of stress tests in a speech given in Frankfurt.
- 3 October 2019
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Andrea Enria to address the FMA Annual Conference
The Supervisory Board Chair will give a speech in Vienna discussing risks and trends in euro area financial markets.
- 6 November 2019
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Andrea Enria to speak at the Third ECB Forum on Banking Supervision
The Chair will deliver a keynote speech in Frankfurt on the fifth anniversary of the Single Supervisory Mechanism and discuss the achievements and challenges of European banking supervision.Conference programme
Recent Highlights
- 26 July 2019
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ECB concludes comprehensive assessment of six Bulgarian Banks
Comprehensive assessment followed Bulgaria’s request for close cooperation with the ECB. Bulgarian authorities will follow up on the findings.Press release
- 18 July 2019
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ECB concludes comprehensive assessment of Nordea
Comprehensive assessment of Nordea was a requirement following its relocation to the euro area. The assessment found that Nordea does not face any capital shortfalls as it did not fall below the thresholds used in the asset quality review and the stress test.Press release
- 11 July 2019
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ECB announces appointment of three new ECB representatives to Supervisory Board
Governing Council of the ECB appoints Edouard Fernandez-Bollo, Kerstin af Jochnick and Elizabeth McCaul as ECB representatives to the Supervisory Board of ECB Banking Supervision, each for a five-year non-renewable term.Press release
- 8 July 2019
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ECB finalises guide to harmonise rules on banks’ internal models
Final chapters of the guide provide transparency on how the ECB understands the regulations on the use of internal models to calculate own funds requirements for credit risk, market risk and counterparty credit risk.Press release
- 4 July 2019
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Speech by Andrea Enria on profitability and consolidation in the European banking sector
Explains that the European banking sector is still too large and that there is a clear need for consolidation in order to deal with a fragmented market.Speech
- 20 June 2019
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Speech by Andrea Enria on the importance of culture and governance for good banking
Maintains that sound internal governance ensures that banks weigh potential short-term gains against potential long-term risks and that strengthening governance will allow banks to regain people’s trust.Speech
- 15 June 2019
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Speech by Pentti Hakkarainen on the future of European banking
Argues that new technology in the banking sector and improved conditions for providing financial services across borders can strengthen financial stability and benefit society as a whole, while making it easier for market forces to work.Speech
- 14 June 2019
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Speech by Andrea Enria on the non-performing loans in the euro area
Elaborates on the current situation regarding NPLs and argues that despite the progress achieved by reducing them by almost 50% since 2014, banks need to continue their efforts to solve the problem while the economy is still resilient.Speech