Supervision Newsletter November 2020
Interview
"Joining European banking supervision marks a key milestone for us"
What can Bulgarian and Croatian banks expect from European banking supervision? Martina Drvar from the Croatian central bank and Radoslav Milenkov from the Bulgarian National Bank discuss what’s in store and their priorities.
In Focus
Good governance in times of crisis
Banks are having to adjust certain governance arrangements in response to the coronavirus (COVID-19) pandemic. What are good practices in this crisis, what actions would raise red flags in supervisory assessments and where is further effort needed?
COVID-19: the impact on Europe’s smaller banks
Small and medium-sized banks play a key role in the European economy but the fallout from the current crisis could affect their asset quality and solvency, as struggling companies have spillover effects on banks.
Brexit: banks should prepare for year-end and beyond
Banks need to prepare for the end of the Brexit transition period to ensure that the EU financial system remains strong. Supervisory expectations are clear, but some banks are yet to complete their to-do lists.
Bolstering fit and proper supervision
Can the ECB improve fit and proper supervision even though the underlying rules are not yet harmonised across Europe? Yes – it will implement more efficient processes, enhance assessment scopes and provide additional guidance to banks.
Ramping up climate-related and environmental risk supervision
With its guide on climate-related and environmental risks, the ECB is stepping up its efforts to make banks more resilient to physical and transition risks. Banks’ practices will be subject to increased supervisory scrutiny.
Key data
Pillar 3 data on encumbered assets
According to Pillar 3 disclosures of significant banks in the euro area, the share of encumbered assets had been trending downwards in recent years, but increased to 22.15% in Q2 2020, up from 19.26% in Q4 2019. Reconciliation efforts resulted in significantly improved data consistency.
Did you know...
… that submitting information to the ECB for supervisory processes, exchanging documents or reporting a breach of EU law is only a click away? Through the ECB’s new Banking Supervision Portal, all banks will soon be able to initiate and track fit and proper assessments and share confidential information with their dedicated supervisory teams securely, quickly and efficiently. The Portal is also the entry point to our external whistleblowing platform that allows stakeholders to report suspected breaches in a secure and protected way. More supervisory processes will be added to the Portal over time, creating a one-stop shop for banks and other stakeholders.
Upcoming Events
- 18 November 2020
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Andrea Enria and Elizabeth McCaul at the 7th Annual Conference on the Banking Union organised by Goethe University
The Chair of the Supervisory Board will speak about ECB Banking Supervision’s approach to longer-term risks such as climate change. The ECB representative to the Supervisory Board will take part in a panel discussion on the regulatory agenda for the decade ahead.
- 25 November 2020
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Kerstin af Jochnick to participate in the Sustainable Architecture for Finance in Europe (SAFE) Frankfurt online Conference
ECB representative to the Supervisory Board will discuss the impact of the pandemic crisis on the banking union project and on bank capitalisation and resolution.
- 30 November 2020
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Pentti Hakkarainen at the ECB’s Supervision Innovators Conference
ECB representative to the Supervisory Board will speak about the ongoing digitalisation of ECB Banking Supervision processes.
- 3 December 2020
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Andrea Enria in conversation at the Financial Times online Global Banking Summit 2020
The Chair of the Supervisory Board will discuss the immediate and long-term implications of COVID-19 for the outlook for the banking sector.
- 16 December 2020
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Andrea Enria to speak at a meeting with the Italian Banking Association
The Chair of the Supervisory Board will talk about ECB Banking Supervision’s priorities for 2021.
- 16 December 2020
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Elizabeth McCaul at the EIFR webinar on regulatory issues
ECB representative to the Supervisory Board will discuss the relationship between regulation and supervision.
Recent Highlights
- 5 November 2020
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Interview with Andrea Enria in De Tijd and L’Echo
Explains the reasons behind the proposal for a European asset management company and warns that the second wave of the pandemic could have a significant impact on banks’ capital and asset quality.Interview
- 4 November 2020
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Speech by Elizabeth McCaul on the next stage of European banking supervision
Argues that fortifying balance sheets now can bring considerable benefits in the future as it enables loss absorption and facilitates lending to viable businesses.Speech
- 3 November 2020
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Speech by Andrea Enria on the challenges of the pandemic and beyond
Suggests that the strengthened capital positions of banks helped the ECB respond effectively to the crisis. Banks must brace for weakening loan quality, proactively manage credit risks and tackle structural weaknesses.Speech
- 30 October 2020
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Speech by Elizabeth McCaul on COVID-19 and lessons in governance
Warns that the COVID-19 crisis is likely to lead to seriously impaired bank balance sheets and asset quality, and surviving it will require decisive management action and effective credit risk management.Speech
- 29 October 2020
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Speech by Kerstin af Jochnick on supervision in times of uncertainty
Explains that we need coordinated action to smoothen the eventual withdrawal of relief measures, while banks should give supervisors a realistic picture of asset quality and capital, and tackle long-term challenges.Speech
- 27 October 2020
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Opinion piece by Andrea Enria on bank asset quality and an asset management company
Urges quicker action and a deeper restructuring of the banking sector to avoid repeating past mistakes in dealing with bad loans. A European asset management company would be an effective solution.Opinion piece
- 22 October 2020
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Speech by Pentti Hakkarainen on banks’ cybersecurity
Notes that digital operational resilience in the banking sector has held up under the COVID-19 pandemic. But as cybercrime threats rise, banks must be vigilant and continue to improve their cybersecurity.Speech
- 12 October 2020
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Interview with Andrea Enria in Handelsblatt
Encourages banks to build up their capacity to deal with bad loans, and discusses the dividend recommendation and the need to address the structural weaknesses of the European banking market.Interview
- 9 October 2020
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Blog post by Andrea Enria and Edouard Fernandez-Bollo on cross-border integration of banking groups
Explains the need to foster the integration of cross-border banking groups to ensure timely intragroup liquidity support and sets out how recovery plans could be strengthened by using group support agreements.The Supervision Blog
- 9 October 2020
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Fireside chat with Kerstin af Jochnick on the priorities of ECB Banking Supervision amid the pandemic
Elaborates on the extraordinary measures the ECB has taken to help the banking sector during the COVID-19 crisis and explains how the recommendation on dividends helps address future uncertainties.Fireside chat
- 1 October 2020
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Speech by Andrea Enria on the evolving supervisory response to the pandemic
Notes that banks and supervisors should look beyond the pandemic and describes the evolving supervisory response to the crisis and what is needed so that banks can emerge from it stronger.Speech
- 1 October 2020
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Opinion piece by Yves Mersch on fit and proper assessments
Elaborates on the implementation of stricter and more intrusive fit and proper assessments. Greater harmonisation of national legislation is needed to reach even higher governance standards in European banks.Opinion piece
- 18 September 2020
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ECB finalises guide to assessing how banks calculate counterparty credit risk
The guide outlines the methodology used to assess how banks calculate their exposure to counterparty credit risk and advanced credit valuation adjustment risk.Press release
- 17 September 2020
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ECB allows temporary relief in banks’ leverage ratio after declaring exceptional circumstances due to pandemic
Banks under the ECB’s direct supervision may exclude certain central bank exposures from the leverage ratio until 27 June 2021. The move is aimed at easing the implementation of monetary policy.Press release
- 11 September 2020
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Speech by Yves Mersch on supervisory action in times of crisis
Explains why temporarily restricting dividend distributions was justified to support banks’ capacity to absorb losses without compromising their ability to continue lending to the real economy.Speech