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Supervision Newsletter - November 2022


"After the crisis is before the crisis"

Mark Branson, Member of the Supervisory Board of the ECB and President of BaFin, Germany’s Federal Financial Supervisory Authority, explains the role of supervision in uncertain times. He shares his views on asset valuations, cyberattacks and interest rates, and also discusses crypto-assets and sustainable finance.

Interview with Mark Branson
Get the latest on banking supervision!

In focus

Banks and CCPs facing stressed derivatives markets

Sharp energy price swings have sparked volatility in derivatives cleared by central counterparties (CCPs). Banks have provided credit and liquidity lines to cover the resulting sizeable margin calls. The system has been resilient so far, but risks remain.

Article on stressed derivatives markets

Smaller banks’ lending and credit risk

Smaller banks are vital for the economy but operate in a competitive environment. Some of these banks must step up efforts to reduce their stocks of non-performing loans, but their widely-differing business models mean risk management must be individually tailored to each bank.

Article on smaller banks’ lending and credit risk

Pillar 3 reconciliation: improving banks’ reporting discipline

In assessing compliance with Pillar 3 disclosure requirements, the ECB reconciles banks’ published Pillar 3 information with data reported to supervisors. The 2022 reconciliation focused on counterparty credit risk, solvency, liquidity coverage and net stable funding ratios.

Article on Pillar 3 reconciliation

More effective fit and proper decisions

Bank directors must be of good repute and free from conflicts of interest. European banking supervision checks this through the fit and proper process, which has recently been simplified with a sharper focus on the ancillary provisions that appointees must fulfil.

Article on more effective fit and proper decisions

Scaling up suptech

Supervisors need to use the latest technology to remain effective and efficient. In the ECB’s third Supervision Innovators Conference international participants shared and discussed new “suptech” tools to support analytics, process automation and digital collaboration.

Article on the 3rd Supervision Innovators Conference

Key data

Banks show solid profitability in the first half of 2022

European banks’ annualised return on equity jumped to 7.62% in the first half of 2022 (up from 6.92% one year ago) while operating expenses remained high at €162bn (up from €156bn one year ago). Key profitability drivers were strong interest income (€140bn) and low impairments (€24bn). The net stable funding ratio stood at 127%, down for the second consecutive quarter.

Supervisory banking statistics

Did you know...

… that the majority of planned onsite inspections at ECB-supervised banks in 2023 will focus on credit risk, followed by governance and IT risk in line with the ECB’s medium-term supervisory priorities? Business models will be another area, with inspections looking closely at the digital transformation of banks. A number of inspections will also concentrate on interest rate risk in the banking book and some will cover climate aspects, often in combination with other risks.

Upcoming events
21 November 2022
Edouard Fernandez-Bollo at Conférence CRD VI organised by Gauvin & Raji |Avocats, Paris
ECB representative to the Supervisory Board will speak about the Capital Requirements Regulation and the Capital Requirements Directive.
23 November 2022
Edouard Fernandez-Bollo at the XXIX Encuentro del Sector Financiero organised by ABC and Deloitte
ECB representative to the Supervisory Board will elaborate on the role of boards for the transformation of banks.
24 November 2022
Andrea Enria at the 40th ESBG Board of Directors meeting and 19th ESBG General Assembly
The Chair of the Supervisory Board will talk about the future challenges for European Banking Supervision.
25 November 2022
Kerstin af Jochnick at the annual conference of the European Association for Banking and Financial Law
ECB representative to the Supervisory Board will discuss the outlook for the European banking industry.
28 November 2022
Elizabeth McCaul at the Financial Times Crypto and Digital Assets Summit
ECB representative to the Supervisory Board will speak about the safety and inclusiveness of crypto payments.
1 December 2022
Andrea Enria at the regular hearing at the European Parliament
The Chair of the Supervisory Board will discuss current issues related to banking supervision with the members of the European Parliament’s Economic and Monetary Affairs Committee (ECON).
1 December 2022
Frank Elderson at Lustrum Symposium organised by Vereniging voor Financieel Recht
The Vice-Chair of the Supervisory Board will talk about digital and sustainable finance.
6 December 2022
Kerstin af Jochnick at Women in Finance Talks 2022
ECB representative to the Supervisory Board will participate in a panel discussion about women in the financial sector.
9 December 2022
Elizabeth McCaul at the 24th Annual Invest in Greece Forum in New York
ECB representative to the Supervisory Board will discuss the ECB’s supervisory priorities.
Recent highlights
4 November 2022
Blog post by José Manuel Campa, Luis de Guindos and Andrea Enria
Full and timely implementation of Basel III standards is crucial for a safe and sound banking system. EBA and ECB warn about deviations from these internationally agreed standards.
The Supervision Blog: Strong rules, strong banks: let’s stick to our commitments
2 November 2022
Press release about the 2022 thematic review on climate and environmental risks
Banks are still far from adequately managing climate and environmental risks. The ECB is now setting staggered deadlines for banks to progressively meet all the supervisory expectations by 2024.
Press release: ECB sets deadlines for banks to deal with climate risks
17 October 2022
Interview by Andrea Enria at the IIF Annual Membership Meeting
In current baseline assumptions, the positive effect of higher interest rates on margins seems to be predominant for banks. However, continuous focus on the risk scenario ahead is needed.
Interview at the IIF Annual Membership Meeting
4 October 2022
Speech by Andrea Enria at the Austrian Financial Market Authority Supervisory Conference 2022
Banks need to engage seriously with supervisors on the downside risks underlying the macroeconomic and financial outlook.
Speech: Better safe than sorry: banking supervision in the wake of exogenous shocks
29 September 2022
Speech by Frank Elderson at De Nederlandsche Bank/OMFIF conference on integrating biodiversity into financial markets
Nature-related risks could have significant macroeconomic implications. Central banks, supervisors, regulators and international standard-setting bodies need to address these risks.
Speech: Natura finis magistra – acknowledging nature-related risks to make finance thrive
22 September 2022
Speech by Anneli Tuominen at the 9th Conference on the Banking Union
Banks now have more board-level expertise on climate-related and environmental risks. However, many are not yet fully aligned with supervisors’ expectations for managing and disclosing such risks.
Speech: The way towards banks’ good climate change risk management
20 September 2022
Speech by Elizabeth McCaul at AFME’s 17th Annual European Leveraged Finance Conference
Banks’ risk management practices should correspond to their risk-taking. Banks should properly identify, measure, manage and limit risks.
Speech: Supervising leveraged lending
7 September 2022
Article by Edouard Fernandez-Bollo for Eurofi Magazine
It is essential right now for each bank, whatever its business model, to carefully assess the potential impact different macroeconomic scenarios and prepare to respond proactively to difficulties that may emerge.
Eurofi Magazine article: Preserving the diversity of European banking business models
13 September 2022
Interview by Kerstin af Jochnick with Børsen
Banks play a very important role in society which means strict requirements are needed – for both banks and their boards – to ensure a safe and sound financial system.
Interview with Børsen
1 September 2022
Press release on appointment of five experts to re-evaluate the annual supervisory review process
ECB Banking Supervision appointed five external experts on banking supervision to independently advise on how to make the Supervisory Review and Evaluation Process more efficient.
Press release: ECB appoints five experts to re-evaluate annual supervisory review process