Supervision Newsletter February 2021
Interview
"We are not out of the woods just yet"
Kerstin af Jochnick, Member of the ECB’s Supervisory Board, looks back at the road travelled by banks and supervisors during the pandemic – and is confident that the resoluteness shown so far will stand European banks in good stead for the challenges of the year ahead.
In Focus
COVID-19 exposes weaknesses in banks’ recovery plans
The pandemic has put banks’ recovery plans to the test. But to weather a system-wide storm of this kind, banks need to improve crucial parts of their recovery plans, as the ECB found in its most recent benchmarking exercise.
COVID-19: making decisions in uncertain times
Governments and supervisory authorities took extraordinary measures in response to the pandemic. Find out how decisions were made in times of uncertainty and what considerations will drive any future changes or adjustments.
Credit underwriting standards: a challenge for smaller banks
How does market competition influence the terms and conditions under which smaller banks grant loans? Does banks’ loan pricing really account for the inherent risks? European supervisors found some concerning vulnerabilities.
Digital transformation of supervision picks up pace
The ECB and national supervisors have created an action plan for digital transformation. Discover what this means in practice, what challenges remain and why knowledge sharing is crucial to making the transformation a success.
SREP results 2020: banks show resilience but weaknesses remain
Did the pragmatic SREP adequately scrutinise banks? Have a look at the results of the assessment to see why credit risk, internal governance and low bank profitability will remain high on the supervisory agenda for 2021.
Key data
Leverage ratio of significant banks up in Q3 2020
The leverage ratio rose to 5.63% in Q3 2020, from 5.33% in Q2. This was due to a drop in total exposure from €25 trillion in Q2 2020 to €23.6 trillion in Q3, partly owing to the exclusion of central bank exposures from the ratio.
Did you know...
… that we will be publishing all of the Memoranda of Understanding that ECB Banking Supervision has negotiated with supervisory and market authorities worldwide? Memoranda of Understanding (MoUs) are cooperation frameworks that help coordinate the supervision of internationally active banks. When signing an MoU, the ECB and authorities inside and outside the EU agree on principles for cooperation and information-sharing. More than 20 MoUs have been signed since the start of European banking supervision. Brexit also required a new MoU between the ECB and the two UK financial supervisory authorities, which became effective on 1 January 2021.
Upcoming Events
- 19 February 2021
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Edouard Fernandez-Bollo at Florence School of Banking and Finance Bank Board Academy
ECB representative to the Supervisory Board will discuss governance issues in banks.
- 24 February 2021
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Elizabeth McCaul at Global Association of Risk Professionals (GARP) Virtual Risk Convention
ECB representative to the Supervisory Board will speak about regulatory frameworks and their role during the pandemic.
- 16 March 2021
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Andrea Enria at Morgan Stanley European Financials Conference
The Chair of the Supervisory Board will give a speech on ECB Banking Supervision’s recent actions and current supervisory issues.
- 17 March 2021
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Frank Elderson at Morgan Stanley European Financials Conference
The member of the Executive Board of the ECB will discuss regulatory and supervisory developments.
- 23 March 2021
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European Parliament – regular hearing of Supervisory Board Chair Andrea Enria
The Chair of the Supervisory Board will discuss current issues related to banking supervision with the members of the European Parliament’s Economic and Monetary Affairs Committee (ECON).
- 24 March 2021
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Elizabeth McCaul at The Economist virtual event on the EU recovery and resilience fund for Croatia’s transition
ECB representative to the Supervisory Board will talk about European banking supervision and Croatia’s post-pandemic recovery.
- 12 May 2021
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Andrea Enria at Delphi Economic Forum
The Chair of the Supervisory Board will speak about the supervisory response to the pandemic and other current issues.
Recent Highlights
- 5 February 2021
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Speech by Andrea Enria on effects of Brexit on regulation, supervision and cooperation
Discusses what Brexit means for financial services and banking supervision and stresses the need for regulators and supervisors to cooperate closely given the interconnectedness and constant innovation of financial markets.Speech
- 3 February 2021
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Speech by Pentti Hakkarainen on technological innovation and supervision
Explains the benefits that technological innovation brings to customers while increasing competitive pressures on banks. Explains how supervisors and regulators can best contribute to managing this process and emerging risks.Speech
- 28 January 2021
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Andrea Enria holds press conference on results of 2020 SREP
Overall SREP requirements and guidance remain stable. Credit risk management, capital strength, business model sustainability and internal governance are supervisory priorities for 2021.Introductory statement
- 25 January 2021
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Hearing of Frank Elderson at European Parliament’s Committee on Economic and Monetary Affairs
Elaborates on the immediate and ongoing challenges for euro area banks and shares insights on digitalisation, climate change, anti-money laundering and combating the financing of terrorism.Introductory statement
- 15 January 2021
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Speech by Andrea Enria on crisis management for medium-sized banks
Explains why a harmonised and fit-for-purpose crisis management framework for medium-sized banks is crucial and makes concrete proposals for steps towards completing the banking union.Speech
- 12 January 2021
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ECB finalises guide on supervisory approach to consolidation
Guide clarifies the use of supervisory tools to facilitate sustainable consolidation. Credible plans will not be penalised with higher capital requirements and profits from badwill are to be used as capital of the new bank.Press release
- 30 December 2020
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Interview with Andrea Enria in Börsen-Zeitung
Explains that the key focus of ECB Banking Supervision is credit risk measurement and the risks to banks’ balance sheets caused by the pandemic and outlines the agenda for the years ahead.Interview
- 15 December 2020
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ECB asks banks to refrain from or limit dividends until 30 September 2021
Calls on banks to limit dividends and reiterates supervisory expectation that banks exercise extreme moderation on variable remuneration.Press release
- 4 December 2020
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Blog post by Elizabeth McCaul on the need for strong credit risk management
Explains that banks must be proactive in credit risk management and transparent about borrower health. Inaction could induce a credit crunch, which would undermine the relief measures and delay the recovery.The Supervision Blog
- 27 November 2020
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ECB publishes final guide on climate-related and environmental risks for banks
Guide asks banks to perform a self-assessment on ECB expectations in 2021. The ECB will fully review banks’ practices in 2022 and the 2022 stress test will also focus on climate-related risks.Press release