(Finance) – “In almost ten years of European banking supervision we have certainly been effective in many risk areas”, but “there is no reason to be complacent” and “there are also areas where banks have delayed,” he said Frank Eldersonmember of the Executive Board and Vice-President of the Supervisory Board of the European Central Bank (ECB), in a speech in Brussels.
“This is especially true for internal governancerisk management and business model sustainability for which too many supervisory findings have not been fully addressed for too long – he explained – For example, there are a high number of exceptional findings relating to weaknesses in aggregation and risk data reporting, which was the lowest-scoring internal governance subcategory in the 2022 SREP.”
According to Elderson, “after moving from a start-up to a mature supervisor, we must now focus more systematically on which tools we use and under which circumstances“. In particular, “we are adopting a structured approach in full respect of the principle of proportionality, which is a general principle of Union law enshrined in Article 5 of the Treaty on European Union. This means that once a set of potentially effective measures has been identified, the supervisor should always choose the least invasive one. Supervisors need to be clear about how the chosen measure addresses unmanaged and unhedged risk and why other measures would not be as effective as the chosen measure.”
Subsequently, “using theescalation of vigilance, we give banks sufficient opportunities to address the root cause of a problem within a defined time frame. Fortunately, many banks address the root cause of the problem in response to our supervisory pressure and that is the end of the story. But if banks fail to resolve the problem in a timely manner, we will act proportionately but decisively by adopting more invasive supervisory tools.”
In his conclusions he said that “the turbulence of March 2023 was a clear reminder of what can happen if problems are detected but not resolved. This crisis episode confirms that a invasive and effective supervision is more necessary than ever“.