Streamlining Supervision & Safeguarding Resilience

In a blog post published last month, European Central Bank (ECB) Supervisory Board Chair Claudia Buch and member Sharon Donnery argue that supervisors must “reduce undue complexities by increasing efficiency, effectiveness and risk focus” in order to adapt to the fast-changing risk environment.

European banks are operating amid evolving financial and operational risks and rapid digitalisation, making strong governance, forward-looking risk assessments, and sound risk management essential to “remain resilient and competitive,” they argue. The blog post outlines how the ECB is reforming European banking supervision to simplify requirements while preserving its core mandate of safeguarding banks’ safety and soundness.

While some simplification proposals require legislative change, the ECB is already acting within the existing framework. Its reform agenda rests on four initiatives: streamlining the Supervisory Review and Evaluation Process (SREP), modernising and digitalising supervisory tasks, strengthening a common supervisory culture, and improving how supervisory effectiveness is assessed.

Buch and Donnery offer practical examples that illustrate the approach. Fit and proper assessments are being accelerated by focusing renewal cases on “what has changed since the previous decision”. Stress test reporting is being streamlined to reduce duplication and unnecessary data checks. Low-risk, routine approvals such as small share buybacks will move to fast-track processes so supervisors can focus on material risks. Internal model approvals will become more streamlined and more risk-based, freeing resources for higher-risk areas.

“We are not simplifying for simplification’s sake,” they conclude. “Rather, the reforms are strengthening our supervisory effectiveness and risk focus. Maintaining resilience is and will remain the guiding objective of our work. This is what the reform agenda of European banking supervision is about: removing procedural complexity that may hinder us from reaching our supervisory goal of protecting the safety and soundness of banks and the stability of the financial system.”