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ECB to Update its Supervisory Regime

ECB to Update its Supervisory Regime

by Starling Insights

Starling Insights Editorial Board

May 30, 2024


In a blog post published earlier this week, Claudia Buch, Chair of the Supervisory Board of the European Central Bank (ECB), announced the ECB's intent to update its Supervisory Review and Evaluation Process (SREP).

"The risk environment in which banks operate has evolved substantially in recent years," Buch wrote. “As risks evolve, supervision must evolve too. Supervisors need to understand risks, they need to be forward-looking, they need to communicate clearly with banks, and they need to be intrusive in their actions to ensure that banks remediate their deficiencies.”

The new SREP, which will build upon ten years of successful European banking supervision, will be more effective and efficient, Buch explained. The ECB's Supervisory Board has set six goals for the new supervisory regime:

  • Focusing risk assessments — To assess bank-specific risk profiles, supervisors need common tools, methodologies, and procedures;
  • Better integrating supervisory activities — Supervision needs to deliver a structured, comprehensive, and consistent view of banks' risks, based on different supervisory activities;
  • Using the full supervisory toolkit — Supervision is not only about identifying risks but also about mitigating them. The reformed SREP will make supervision more effective and intrusive by using the full range of supervisory tools that the law makes available;
  • Enhancing communication — Supervisory communication to banks needs to be clear and concise. In the future, SREP decisions will be more focused, clearly outline supervisory expectations, and include strong measures when needed;
  • Making methodologies more stable — Good supervision is based on consistent methodologies like those developed during the first decade of European banking supervision. The ECB will now work to make those existing methodologies more stable and, where possible, simpler and more transparent; and
  • Making better use of IT systems and analytics — ECB Banking Supervision has prioritized its digital agenda, and it plans to continue its investment in supervisory technology (SupTech) applications to improve efficiency, access to data, risk analysis, consistency of decision-making, and collaboration.

"The SREP will become shorter and move closer to real-time supervision," Buch wrote. "To fully reap the benefits of these and other measures, ECB Banking Supervision will foster a supervisory culture that focuses on key risks and encourages strong and timely actions."

For more on the past, present, and future of European banking supervision, don't miss Elizabeth McCaul, a Member of the ECB's Supervisory Board, and Andrea Enria, past-Chair of the ECB's Supervisory Board, in our 2024 Compendium. The importance of strong and effective supervision, and the application of SupTech thereto, will also be a key topic of conversation during our Compendium Launch Event on June 11th. ▸ Learn More

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