Simplifying Supervision Without Weakening Standards

In an interview with Die Presse published this week, Frank Elderson, a Member of the European Central Bank’s (ECB) Executive Board and Vice-Chair of its Supervisory Board, discussed how European banking supervision can become simpler and more proportionate without weakening prudential standards. 

Elderson said complexity in regulation and supervision partly reflects the complexity of banks themselves and the risks they face, but stressed that “simplification is not the same as deregulation.” He argued that the bigger obstacle to European banking competitiveness is market fragmentation rather than prudential requirements, pointing to differences in legal frameworks, insolvency regimes, and consumer protection rules that continue to limit cross-border activity. “If fragmentation is the diagnosis, integration is the remedy — not deregulation,” he said.

On proportionality, Elderson said supervision should be tailored more closely to banks’ size, complexity, and risk profile. He supported raising the threshold for a bank to qualify as “small and non-complex” from €5 billion to €10 billion in assets, which he said could bring roughly 150 additional banks into a lighter reporting regime. He also suggested longer intervals between some regulatory reviews and greater reuse of existing data in stress testing. When asked how far simplification should go, Elderson said, “No further than the risk.” He added that core expectations around governance, risk management, capital, and liquidity should remain unchanged.

Elderson also highlighted risks arising from AI and the growing links between banks and non-bank finance. On AI, he pointed to cyber risk, biases and blind spots, data quality, and dependence on a small number of cloud providers, and said banks have been asked to submit plans for addressing AI-related cyber risks by the end of October. On private credit and other non-bank financing, he warned that risks can still flow back into banks through interconnected exposures, creating concentrations that may only become visible under stress.