12 February 2024

SSM's Buch: European banking supervision a decade on: safeguarding banks’ resilience amid global challenges

... in the longer term, banks will not be immune to risks and unexpected events. The currently good level of profitability provides an opportunity to build buffers to cushion shocks. At the same time, a stable banking system is crucial for managing risks and promoting welfare.

Many Europeans look into the new year with concerns about the future. Immigration, the Russian war against Ukraine, geopolitics, inflation and climate change are mentioned as key concerns in recent Eurobarometer surveys.^[1]

We indeed live in a period of high uncertainty, characterised by “shifts and breaks”, as President Lagarde said last year.^[2] Our economies and societies have been hit by several shocks in the past few years. There is high uncertainty surrounding the conjunctural outlook and, more fundamentally, the structural changes that lie ahead. Geopolitical risks, climate change, demographic trends and digitalisation are forcing us to adjust the way we produce and consume.

This uncertainty affects banks. In the short-term, higher interest rates have boosted their profitability. European banks have weathered recent storms thanks both to their own resilience and to the significant fiscal and monetary support that mitigated the impact of the recent shocks. However, in the longer term, banks will not be immune to risks and unexpected events. The currently good level of profitability provides an opportunity to build buffers to cushion shocks.

At the same time, a stable banking system is crucial for managing risks and promoting welfare.

Ensuring that the banks remain resilient is thus the central objective of European banking supervision. Resilience means that banks can absorb shocks – that they may bend under stress, but that they won’t fall.

The banking union gives us the relevant tools and powers. It is one of Europe’s major achievements. It was, ten years ago, the right response to the global financial crisis and the European sovereign debt crisis. With the Single Supervisory Mechanism (SSM) and the Single Resolution Board, we have strong frameworks and institutions to safeguard the stability of banks and to deal with stress events.

The stability of the EU framework is indeed appreciated by its citizens, despite the anti-EU rhetoric that we often hear. Surveys show that most look to the EU as a source of stability and are optimistic about the future of Europe.^[3]

The achievements of the SSM during its first ten years are a strong foundation for our future work. We closely cooperate within the system, we apply the same standards across all supervised banks, and risks have been reduced. This would not have been possible without the trust that has been forged between supervisors across Europe.

But we should not stop here. Complacency is not an option. I see three main areas of focus for European banking supervision.

First, we need to adapt our supervision to the new environment. Heightened macroeconomic and geopolitical risks coupled with changes in the competitive environment leave banks exposed to new risks. This requires close attention, and it is one of our supervisory priorities.

Second, we need to enhance supervisory effectiveness. This means focusing attention on relevant risks and following up on supervisory findings.

Third, we need to continuously and transparently connect with our stakeholders. This is at the centre of activities to mark the SSM’s tenth anniversary. We are planning several initiatives to bring us closer to the EU citizens we serve and to engage with policymakers. It is no coincidence that I am giving my first speech here in Brussels, the heart of Europe and the home of the European legislator....

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