20 October 2023

SSM's McCaul: The art and science of good supervision

I will focus less on the legal framework and more on the evolution of our supervisory approach, especially in the current complex environment...Some would say that supervision is not a science but an art.

I remember distinctly the overwhelming sense of awe I felt when I attended my first Supervisory Board meeting in 2019 after being appointed ECB Representative to the Supervisory Board. Even though the SSM was then only a few years old, it had already achieved a remarkable level of sophisticated supervisory prowess. In just a few short years, the SSM had not only bundled oversight of its complex portfolio of supervised institutions within an elaborate governance framework. It had also become one of the largest and most respected supervisors in the world.

And believe me: this is no small feat. I would even argue that the establishment of the banking union and along with it the arrival of European banking supervision was the greatest step in European integration since the Maastricht Treaty and the creation of the euro.

Now that we are celebrating ten years of the SSM Regulation, I would like to take stock of what has been achieved and look at the journey ahead, because of course there is always more we can do to make our supervision even more effective.

I will focus less on the legal framework and more on the evolution of our supervisory approach, especially in the current complex environment.

Some would say that supervision is not a science but an art. It is fitting here in Rome, home of countless unparalleled artworks, that I thought I would ask you to think about supervision as art. However, even the great Renaissance masters like Michelangelo, Raphael or Da Vinci knew to combine art with maths and science to achieve improbably perfect masterpieces like the Sistine Chapel frescoes, the “School of Athens” or “The Last Supper”.

Of course, I would not dare compare the SSM to the Sistine Chapel, but still: let us for a moment imagine the SSM as a work of art.

A supervisor, just like a painter, must choose the right tool or brush to do the best possible job. Capital is an effective tool, but qualitative measures and remediation and enforcement actions are often more suited to bringing about targeted and effective change in banks. Sometimes the painter needs to pay special attention to the finer brushstrokes, to make sure that the details and the perspective are accurate.

However, choosing the right tool also depends on the material we are working with, be it the regulatory and institutional framework in which we supervise banks, or the canvas or type of surface on which we paint.

Over these ten years, the SSM has created a firm foundation to build on. Banks’ balance sheets are much more resilient than a decade ago and trust in the European banking sector has been re-established. No less important is the supervisory culture and trust we have built within the system, among the various national competent authorities coming together in the Supervisory Board.

We can now put our next brush strokes on the foundation of trust that has been established across European banking supervision. We can afford to encourage the use of more supervisory judgement to dive deep where it matters: becoming more agile, more risk-sensitive and more effective as supervisors...

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