After five years as Vice-Chair of the ECB Supervisory Board, Sabine Lautenschläger talks about surprises during the creation of European banking supervision, challenges such as Brexit and governance, and the need for more harmonised implementation of supervisory rules.
Andrea Enria, Supervisory Board Chair since early January, has dedicated his professional life to promoting European banking integration and will continue to foster robust supervision to help create a truly European banking sector.
The ECB has assessed the plans for 46 UK branches of 42 euro area banks which intend to continue operations after Brexit, and the overall picture is encouraging. Most banks have almost fully aligned their target operating models with supervisory expectations.
This year, the ECB is testing banks’ resilience to idiosyncratic liquidity shocks over a six-month period. The exercise focuses on the impact, not the causes, of the shocks, which are identical for all banks and disregard any differences in their economic environments.
The two internal processes for ensuring that banks identify, effectively manage and cover their capital and liquidity risks at all times – the ICAAP and ILAAP – are key to increasing banks’ resilience. The ECB’s final guides on the two provide detailed principles, explanations and examples.
Today’s banks rely heavily on complex IT systems—regardless of their business models. This means that the potential impact of a cyber-attack on banks is significant and ensuring their cyber security is vital. That poses ongoing challenges for banks and supervisors alike.
Algorithmic (ALGO) trading, where orders are driven automatically by computer algorithms, has made trading processes more efficient and appealing. But it also entails risks. The rapid expansion of ALGO trading has attracted increased attention from regulators and supervisors.
As part of its ongoing efforts to make European banking supervision more transparent, the ECB has added detailed statistics, including on general government exposures, internal ratings-based parameters, and level 1, 2 and 3 assets, to its regularly published supervisory data set. In the third quarter of 2018, the total capital ratio was stable at 17.83% compared with the second quarter of 2018, the non-performing loans ratio was down, at 4.17%, and the liquidity coverage ratio was stable at 140.93%.
…that ECB Banking Supervision launched 269 on-site missions at the directly supervised banks in 2018 to look more closely at specific risk types? The missions focused on inspecting credit, governance, IT, capital and market risks, among others, and included 113 internal model investigations. While most of the missions were led by the inspected bank’s relevant national supervisory authority, 60 were “cross-border” or “mixed-team”, meaning that the head of mission and/or a number of team members came from the ECB or another national supervisory authority. Cross-border and mixed-team missions bring in different perspectives and help make sure on-site inspections are carried out in a more harmonised way across the euro area.