Supervision Newsletter May 2019
"We need to ensure resilience to climate-change risk"
Frank Elderson, Executive Director at De Nederlandsche Bank and a member of the ECB Supervisory Board since 2018, talks about the risk climate change poses to financial institutions and how supervisors can help strengthen resilience.
Banking in a changing climate
Climate change creates both “physical” and “transition” risks. Financial policy and regulation need to be coordinated to tackle these risks and ensure sustainable development. ECB Banking Supervision sees climate-related risks as a key risk driver in 2019.
Keeping an eye on banks’ leveraged lending
Banks are making good progress in the risk management of leveraged loans. Still, they need to continue adequately assessing the direct and indirect risks as leveraged lending markets remain buoyant and lending practices are often influenced by investors’ search for yield.
Brexit: latest state of play
The potential delay of Brexit until 31 October should not slow the pace of banks’ implementation of their Brexit plans. Rather, they should use the time to focus their efforts on implementing their target operating models to ensure they are fully prepared.
Gearing up to fight money laundering
Banks’ involvement in money laundering can pose significant risks to them. In addition to banks’ own efforts, the ECB has strengthened its cooperation with the authorities responsible to incorporate any information from them into its supervisory work.
Guiding lights: non-executive directors
Banks’ non-executive directors are like lighthouses: they oversee, guide and support operations while keeping a healthy distance. Supervisors and banks agree that appointing the right people to non-executive roles is important for governance.
The need for improved cyber resilience
Digitalisation can bring benefits for banks, but also comes with risks. The ECB wants to ensure that banks manage these risks appropriately through its reporting framework. The diverse nature of cyber incidents indicates a range of vulnerabilities that banks need to address.
TRIM: the good, the bad and the future
The ECB’s targeted review of internal models aims to ensure that capital requirements for banks using internal models are calculated correctly and consistently. The exercise has already led to around 80 supervisory decisions with a number of legally binding obligations.
Profitability remains stable while NPL levels drop
The data for the fourth quarter of 2018 show that the return on equity (RoE) for the aggregated group of significant institutions, at 6.16%, was slightly above the 2017 level of 5.92%. The dispersion of RoE across banks reduced significantly over the same period. The non-performing loans ratio continued to fall (3.80% in Q4 2018 compared with 4.93% in Q4 2017). In April 2019 the ECB began publishing the time series of supervisory statistics (from Q2 2015) in the ECB Statistical Data Warehouse.
ECB Statistical Data Warehouse
Did you know...
…that ECB Banking Supervision currently supervises 117 banks in the euro area, but that this number can change at any given time as a result of changes in banks' size, economic importance or cross-border activities? The annual significance assessment is usually conducted from early June until September-October. However, the ECB can carry out ad hoc significance assessments whenever needed, for example on euro area banks expanding their activities in the context of Brexit. The list of significant institutions is now updated on the ECB's Banking Supervision website on a monthly basis (it was previously updated every two to three months). More timely updates reduce the delay between the actual changes and their publication, and also mean that the information held by the ECB and the national competent authorities is better aligned.
List of supervised entities
20 June 2019
Andrea Enria addresses the 2019 conference of the Federation of International Banks in Dublin
The Chair of the Supervisory Board will deliver a keynote speech focusing on banks’ governance and current supervisory challenges.
10 July 2019
Andrea Enria attends the 23rd Economist Government Roundtable in Athens
The Chair will take part in a panel discussion on the progress made towards the unification of banking and financial services and the upcoming challenges.
Upcoming public speeches
- 1 May 2019
Interview with Andrea Enria in La Stampa
Argues that we need common rules for the winding-up of banks, which should be managed by the European resolution authority, in order to avoid many of the current problems. Private investors should be the first to bear the costs.
- 12 April 2019
Speech by Andrea Enria on mutually assured cooperation and banks operating across borders
Argues that we need to create more trust by developing credible institutions, devising binding rules and emphasising common goals so that cross-border banks can fail without triggering a global crisis and burdening taxpayers.
- 11 April 2019
Public consultation on amendments to the supervisory fees framework
Invites comments on changes to the ECB Regulation on supervisory fees. Banks will benefit from a more efficient and tailored process, while fees will decrease for the smallest indirectly supervised banks. Consultation ends 6 June.
- 8 April 2019
ECB publishes results of 2018 SREP
Results show that, on average, banks hold more high-quality capital than required and their liquidity and funding needs remain unchanged. However, their governance and risk management need to be improved.
- 27 March 2019
Speech by Pentti Hakkarainen on central banking and banking supervision today
Elaborates on the international interdependency of central banking and the need to ensure close cooperation and coordination between central banking and supervision in order to optimise technical analysis on both sides.
- 21 March 2019
Presentation by Andrea Enria of the 2018 ECB Annual Report on supervisory activities
Presents the developments in European banking supervision in 2018 and the supervisory priorities for 2019 to the ECON Committee at the European Parliament, and addresses money laundering and crisis management issues.
- 19 March 2019
Interview with Andrea Enria in the Financial Times
Outlines his plans on how ECB Banking Supervision can progress from being a successful start-up to a more mature organisation and elaborates on various features of the institutional set-up such as the lack of diversification to absorb shocks.
- 11 March 2019
Speech by Andrea Enria on digitalisation and banking
Explains that as banking may become an almost entirely digital business, banks need to deal with new technologies, while cooperation with fintechs is conceivable. Supervisors must react to such changes and seize the opportunities.
- 7 March 2019
Speech by Andrea Enria on the need for more transparency
Argues that in a world where banks may get bailed in and supervisors would like to rely more on judgement, supervision must be more transparent and its decisions explained not only to banks, but also to investors and the public.