Margarita Delgado, Deputy Governor of the Banco de España and ECB Supervisory Board member, talks about her unique experience in European banking supervision, the progress made and challenges for European and Spanish banks, and fostering women’s leadership.
A hard Brexit in mid-April was averted but a no-deal Brexit on 1 November is still a very real possibility. While the risks to overall euro area financial stability would be manageable, the ECB expects banks to continue preparing for all possible contingencies.
The profitability of European banks improved slightly in 2018 but this does not ease supervisory concerns, for two reasons. First, profitability levels are still low. Second, profitability, when expressed in numbers, only tells part of the story.
About 160 on-site inspections were conducted in banks in 2018. An in-depth look shows that the key findings related to credit, governance and IT risks. Other prominent risk areas included market risk, interest rate risk in the banking book, capital risk and liquidity risk.
Overall recovery capacity – the extent to which a bank can restore its capital and liquidity in crisis situations – is a good indicator of a bank’s resilience. It is included in banks’ recovery plans and must be based on realistic calculations and accurate reporting.
Non-executive directors play a crucial role in banks' governance. They should oversee, monitor and challenge managers to test the effectiveness of internal controls and governance structures. For this, they need to make a sufficient time commitment.
Five years into European banking supervision, the cooperation between the ECB and the national supervisory authorities has gained momentum. This close collaboration helps when a country is facing challenges in its LSI banking sector.
The aggregate non-performing loans ratio of euro area banks continued to decrease in Q1 2019, to 3.67%. This compares with 4.70% a year earlier. However, the return on equity also decreased in Q1 2019, to 5.76% at the end of the period, a decline of 0.85 percentage points. This decrease was driven by lower aggregate net profit and the increase in banks’ total equity.
…that anyone can report a suspected breach of the rules and regulations of European banking supervision to the ECB via the breach reporting mechanism (whistleblowing process)? Any person who has reasonable grounds to believe that a bank or supervisory authority has breached European Union law in areas within the ECB’s remit can report this directly – and anonymously if so desired – to the ECB. In 2018 the ECB received 124 breach reports, an increase of almost 40% on the previous year. Most of the alleged breaches related to governance issues. The ECB followed up with various measures that included conducting internal assessments, requesting internal audits, asking for documents/explanations or conducting on-site inspections.