Developing Evidence-Based Supervision

In a speech delivered earlier this month, Claudia Buch, Chair of the Supervisory Board of the European Central Bank (ECB), argued that evidence-based supervision is essential to maintaining banking resilience amid rising uncertainty.

She highlighted what she termed the “risk assessment paradox,” noting that supervisory tools relying on historical data become weakest precisely when “forward-looking risk assessments are needed.” As such, supervisors must focus on developing a range of analytical approaches to support informed judgment, Buch argued. This is especially relevant in today’s global risk landscape, she stressed, pointing to intensifying geopolitical risks, cyber threats, and competitive pressure from non-bank financial intermediaries and stablecoin issuers.

Buch strongly rejected deregulation, stressing that “resilience and growth are two sides of the same coin.” She outlined several ongoing reforms to European banking supervision aimed at improving efficiency, effectiveness, and risk-based oversight, including efforts to streamline and strengthen the Supervisory Review and Evaluation Process (SREP) and other major supervisory tasks. Buch also emphasized the value of digital and SupTech tools in focusing resources and creating greater capacity, and the importance of embedding reforms into supervisory culture to change everyday decision-making.

Central to this agenda, Buch emphasized, is a structured evidence-based supervisory cycle: defining objectives, selecting indicators, implementing measures, and evaluating outcomes. “Evidence-based supervision is a safeguard against complacency,” she said. “Periods of calm can create pressure to simplify or relax rules in ways that erode resilience over time. Following a clear policy and supervisory cycle allows us to identify effects and potential unintended side effects of regulation and supervision.”