Pentti Hakkarainen, ECB representative member on the Supervisory Board since February 2017, talks about the challenges ECB Banking Supervision is facing, including in his focus areas of budgetary issues, auditing, and technological advancement.
Brexit has triggered a discussion of booking models and hedging practices. These can slow the development of local capabilities, which can create operational risks and financial stability issues for the empty shell’s host country.
The ECB inspects banks’ internal models for calculating how much capital they need to hold to adequately cover risks. Close collaboration with national supervisors and a holistic approach ensure that the ECB approaches banks on equal terms.
Assessing banks’ board members’ suitability in a consistent manner across the euro area remains challenging. National legal frameworks in the 19 member countries need to be taken into consideration while trying to employ a consistent approach.
Inspections on banks’ premises are supervisors’ most intrusive tool and a powerful complement to off-site supervision. They provide in-depth analyses of the situation of banks, focusing on risks, internal control systems, business models and governance.
Technological progress brings new opportunities for banks, but they are not without risks. The ECB is closely monitoring the situation and has conducted a thematic review of banks’ outsourced activities and how they manage the risks.
The Supervisory Banking Statistics for Q3 2017 show, for the first time, that all banking groups directly supervised by the ECB have CET1 ratios greater than 10%. Moreover, the number of supervised banks with CET1 ratios higher than 20% has remained stable year-on-year.
… that the euro area banking sector has seen a significant degree of consolidation since the financial crisis? Between 2008 and 2016 the number of banks in the euro area declined by 25%, to 5,073. While there are fewer banks in the euro area, they are more profitable and resilient. The regulatory capital ratio (CET1) increased from 8.7% to 16.1%, again from 2008 to 2016. The cost-to-income ratio fell from 67% to 58% in the same period.