In a speech delivered at a conference in Washington, D.C., last week, Frank Elderson, Vice-Chair of the Supervisory Board of the European Central Bank (ECB), offered a defense against growing calls for narrower supervisory mandates, warning against a retrenchment toward frameworks that fixate solely on capital and liquidity metrics.
Elderson emphasized that "resilience depends on more than capital ratios or liquidity buffers." Effective supervision, he argued, must encompass governance, risk culture, operational resilience, and structural drivers such as climate and geopolitical risk. These are not peripheral concerns but integral to safety and soundness, Elderson contended. "[W]eak governance is often the earliest and most reliable warning sign that an institution is heading for trouble," he asserted.
Elderson outlined a five-pillar model for good supervision: risk-based and forward-looking; judgment-led and engaged; operationally independent yet accountable; calibrated to institutional risk; and ultimately enforceable. Streamlining supervisory processes — a goal the ECB is actively pursuing — must not come at the expense of vigilance or early intervention, he stressed.
"The task now is not to do more for the sake of doing more," Elderson concluded. "Nor is it to step back in the name of simplicity. The task is to act decisively and proportionately on the risks that matter. To maintain a supervisory approach that is clear, consistent and enforceable. And to ensure that simplification leads to sharper focus — not diminished resolve."
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