31 October 2023

ECON: Public hearing with Andrea Enria, Chair of the ECB / SSM Supervisory Board - 7 November 2023

As documented in the different sections of this briefing (latest supervisory data, NPLs, unrealised losses, stress tests etc.), euro area banks are overall in a solid position today and also the weaker banks in the spectrum have improved their position, regarding NPL ratios in particular.

Public hearing with Andrea Enria, Chair of the ECB / SSM Supervisory Board
Banking Union Scrutiny

This briefing has been prepared for the public hearing with the Chair of the Single Supervisory Mechanism (SSM), Andrea Enria, scheduled for 7 November 2023.
This briefing addresses:
• The change at the helm of the Supervisory Board
• Internal models supervision: where does the ECB stand?
• Does TLAC work?
• Latest supervisory banking statistics
• Economy-wide climate stress tests
• NPL reduction: Success at risk?
• Significant risk transfer securitisations
• Unrealised losses from debt securities
• 2023 bank stress test results
• ESG regulatory developments
Please also note a new external expertise: “Overly reliant on central bank funding?” by Andrea Resti
Andrea Enria’s last hearing in ECON Committee
Andrea Enria was appointed to chair the ECB’s Supervisory Board from 1 January 2019 for a 5-year term, succeeding Danièle Nouy. When his term ends by the end of this year, Claudia Buch (see Box 1) is designated to succeed him. Before taking up duty at the ECB, Andrea Enria was the first chairperson of the European Banking Authority (EBA), set up in the aftermath of the financial crisis.
Under his chairmanship, the Single Supervisory Mechanism (SSM) played an important role in the continuous improvement of the situation of banks in the Banking Union and of their international standing. As documented in the different sections of this briefing (latest supervisory data, NPLs, unrealised losses, stress tests etc.), euro area banks are overall in a solid position today and also the weaker banks in the spectrum have improved their position, regarding NPL ratios in particular. This was highlighted by Enria himself in the opening speech at LSE’s Financial Markets Group: “As I approach the end of my five years as
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Supervisory Board Chair, I leave a European banking sector that is better capitalised, with much-improved asset quality, ample liquidity and rising profitability. A banking sector that proved resilient to the exogenous shocks hitting the European Union.”
Figure 1 highlights how core capital ratios - as the most watched indicator - have improved for the sector overall, notably through higher capital amounts (blue dotted line), not through reduced lending (green dotted line).
The position that euro area banks are in today is all the more noteworthy since the last years were not without challenges. Euro area banks overall maintained their solid financial position and were able to retain the confidence of capital markets, while the wider economy suffered from the pandemic and the Russian assault on Ukraine and while there was a brief episode of banking failures outside the EU.
Nevertheless, room for improvement remains. In a recent presentation, Enria himself has highlighted the following areas:
First, despite much improved market confidence, depressed market valuations of banks’ equity still hint at a lack of profitability; this makes raising capital and retaining earnings to support new lending to the economy difficult. While the higher interest environment currently helps profitability, a lasting improvement can probably only result from better cost structures, accompanied by sound governance that keeps tabs on risk.
Second, and related to that, market integration in the Banking Union has made little progress, while the creation of SSM, SRB and the single rule book was certainly linked to the hope that banks would start treating the union as a single home market. For parent-subsidiary structures, regulatory requirements to preserve capital and liquidity within Member States’ borders are a challenge - but banking groups are also little inclined to free themselves from such constraints, which they could by turning subsidiaries into branches....

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