Supervision Newsletter August 2020

Interview

"Consolidation can secure safe and sound banks"

Edouard Fernandez-Bollo, ECB representative to the Supervisory Board, outlines the ECB’s supervisory expectations for mergers and acquisitions, which are aimed at ensuring that consolidation increases resilience in the banking system.

Full interview

In Focus

Bank lending in times of crisis

In these times of heightened uncertainty, granting credit can involve a higher level of risk. It is therefore crucial that banks apply adequate lending standards and price their loans to properly reflect underlying risks. Stable banks will be best placed to help steer the economy through the crisis.

Full article

Preparing for benchmark rate reform

The key benchmark rates used by euro area banks are undergoing major reforms. Banks will need to adapt to the new regime in good time and manage related risks. To support them, ECB Banking Supervision has published good practices for the benchmark rate transition.

Full article

Further improvement to ICAAPs needed

The internal capital adequacy assessment process (ICAAP) helps banks to make well-founded business and risk management decisions and maintain an adequate capital position. While banks have significantly improved their ICAAPs in recent years, there is more to be done.

Full article

Exploring the potential of suptech

What role can technological innovation play for banking supervisors? ECB Banking Supervision and national supervisors are tackling this very question. Together, they are exploring the potential of supervisory technology (suptech) and developing new tools to enhance day-to-day supervision.

Full article

Market risk: new reporting requirements

In 2021 banks will need to report their minimum capital requirements for market risk according to a new standardised approach. The new approach is much more risk-sensitive than the current one, but comes with greater complexity and implementation challenges.

Full article

Key data

Profitability down, but NPL ratio better in Q1 2020

The aggregate return on equity fell to 1.2% in Q1 2020, compared with 5.8% a year earlier. The decrease was due to lower aggregate net profit, which was driven by an increase in impairments and provisions, as well as negative net trading income. Meanwhile, the aggregate non-performing loans ratio continued to decrease, standing at 3.1% in Q1 2020, compared with 3.2% in Q4 2019.

Supervisory banking statistics

Did you know...

… that the Single Supervisory Mechanism (SSM) will soon be a bigger jurisdiction than the euro area? In July the ECB’s Governing Council adopted a decision to establish close cooperation with the national central banks of Bulgaria and Croatia. On 1 October the SSM will grow from 19 euro area countries to 21 participating EU Member States and the ECB will begin directly supervising the significant banks in Bulgaria and Croatia. The Supervisory Board will also expand to 34 members from 32 – there are more members than countries because seven countries (Germany, Estonia, Latvia, Luxembourg, Malta, Austria and Finland) have two supervisory authorities, although they have only one vote. The Board also includes the Chair, Vice-Chair and four ECB representatives. This is only the second expansion of the SSM since it was established in late 2014 (the first being when Lithuania joined the euro area and the SSM in 2015).

Upcoming Events

16 September 2020
Pentti Hakkarainen to take part in a webinar organised by the Institute of International Finance
ECB representative to the Supervisory Board will discuss supervisory technology and digitalisation.
30 September 2020
Andrea Enria to attend the European SSM Virtual Round Table organised by the International Bankers Forum and the Deutsche Bundesbank
The Chair of the Supervisory Board will elaborate on ECB Banking Supervision’s recent actions and priorities.
1 October 2020
Andrea Enria at the European Banking Federation high-level public dialogue
The Chair of the Supervisory Board will talk about how banks are supporting economic resilience in COVID-19 times.
9 October 2020
Kerstin af Jochnick at L'Agefi Global Invest Forum
ECB representative to the Supervisory Board will speak about the measures that the ECB has taken to assist banks and will discuss the outlook for the banking sector.
27 October 2020
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).
3 November 2020
Andrea Enria to participate in the Handelsblatt conference on European banking regulation
The conversation with Handelsblatt’s financial editor will focus on the challenges for the banking sector and on new developments in banking supervision.

Upcoming public speeches

Recent Highlights

28 July 2020
Blog post by Andrea Enria: The coronavirus crisis and ECB Banking Supervision: taking stock and looking ahead
States that all supervisory measures and actions are and will continue to be aimed at ensuring that the banking sector can remain resilient and support the economic recovery with an adequate supply of credit.
The Supervision Blog
28 July 2020
ECB extends recommendation not to pay dividends until January 2021 and clarifies timeline to restore buffers
ECB asks banks not to pay dividends and not to buy back shares until January 2021, clarifies expected pace for banks to restore capital and liquidity, and asks them to exercise extreme moderation on variable remuneration.
Press release
28 July 2020
ECB analysis shows euro area banking sector resilient to stress caused by coronavirus
Results of the vulnerability analysis show euro area banks can withstand pandemic-induced stress, but if the situation worsens, depletion of bank capital would be material owing to impaired credit exposures and market risk losses.
Press release
10 July 2020
ECB establishes close cooperation with the central banks of Bulgaria and Croatia
As of 1 October 2020 the ECB will be in charge of the direct supervision of the significant banks in Bulgaria and Croatia, the common procedures for all supervised entities and the oversight of less significant banks.
Press releases
9 July 2020
Blog post by Yves Mersch on Brexit: Banks must prepare for the end of the transition period
Explains that the ECB will continue to engage with all banks affected by Brexit to ensure that they achieve their target operating models in a timely manner, but it will not accept banks attempting to operate as empty shells.
The Supervision Blog
7 July 2020
Blog post by Kerstin af Jochnick: Supervising the new normal
Describes how the ECB acted to limit the economic damage arising from the pandemic, how supervision can remain effective during the crisis and which aspects will be crucial in determining the EU banking sector in the future.
The Supervision Blog
1 July 2020
Blog post by Edouard Fernandez-Bollo: Clarifying the ECB’s supervisory approach to consolidation; ECB launches public consultation
Argues, on the occasion of the launch of public consultation on the supervisory approach to consolidation, that clarifying how the ECB assesses the related risks and benefits can help banks develop sustainable strategies. Consultation ends on 1 October.
The Supervision Blog
22 June 2020
Speech by Pentti Hakkarainen at the Frankfurt Finance Summit
Argues that the banking union has already brought benefits by increasing competition and levelling the playing field and that the EU’s goal should be to complete the banking union within the current institutional cycle, by 2024.
Speech
20 May 2020
ECB launches public consultation on its guide on climate-related and environmental risks
Guide specifies how the ECB expects banks to consider climate and environmental risks in their governance and risk management and when formulating and implementing their business strategy. Consultation ends on 25 September.
Press release