Supervision Newsletter - November 2026

Feature

Physical risk: the ultimate stress test

From 2027, ECB supervisors will take a closer look at how banks measure and manage physical risks. Data gaps, modelling uncertainty and growing pressure on insurance and public support make understanding banks’ actual exposure increasingly important.

In focus

Putting risk appetite at the heart of bank decisions

How well do banks put their risk appetite framework into practice? An ECB benchmarking exercise found good practices but also gaps in risk coverage, oversight and implementation, showing where banks can strengthen decision-making and risk management.

The final step in streamlining SREP methodologies

Starting next year, supervisors will assess short-term liquidity risk, funding sustainability and risk controls under a revised SREP methodology. This latest update completes the overhaul of SREP methodologies launched in 2021.

Four skills that matter for effective bank boards

The ECB is simplifying how it assesses board members’ skills. By focusing on four skill sets, supervisors and banks can concentrate on what matters most for effective governance, while reducing complexity and the administrative burden.

Fit and proper: once is not enough

Suitability is not a one-off assessment. When relevant new facts emerge, banks need to assess their impact and inform supervisors promptly to ensure that board members and key function holders continue to meet fit and proper standards.

Key data

Significant banks achieve record profitability ratios in second quarter of 2026

At 10.7% and 53.1% respectively, banks’ return on equity and cost-to-income ratio reached their highest levels since 2015. Compared with the second quarter of 2025, higher operating income – driven by interest, fee and commission income – more than offset rising expenses and equity.

Over half of loans by smaller banks secured by real estate

Less significant institutions are shifting towards loans secured by real estate: their share of total loans rose from 47% in mid-2020 to 53% in the second quarter of 2026. These loans totalled €1,714 billion, made up of 79.5% lent to households and 20.5% lent to non-financial corporations.