13 March 2024

SSM's af Jochnik speech: The single supervisor ten years on: experience and way forward

"This resilience has been built over time, and... the active role played by the single supervisor should be recognised. Thus far, European banking supervision is fulfilling the promise on which it was established ten years ago, which is to ensure that banks remain safe and sound."

In my speech today I will outline the risks we see for the banking sector and the supervisory actions we intend to take to keep those risks in check. I will touch on a number of issues that will be tackled in the individual sessions of today’s conference, including the macroeconomic outlook, sustainable and green finance, and the digital transformation. So I hope that my remarks set the stage for your discussions later on.

The overall message I would like to convey to you is both optimistic and cautious.

The optimistic part is that the banking sector remains resilient overall, as proven in recent years by its ability to withstand large and sudden external shocks. This resilience has been built over time, and, although not the only factor, the active role played by the single supervisor should be recognised. Thus far, European banking supervision is fulfilling the promise on which it was established ten years ago, which is to ensure that banks remain safe and sound.

However, while banks are generally well positioned to deal with external shocks thanks to solid capital and liquidity buffers for the system as a whole, we also know that they will continue to face headwinds. The current environment of high interest rates and sluggish economic growth means that banks need to pay close attention to credit risk, particularly in vulnerable and leveraged sectors. The fact that some banks still show weaknesses in risk controls and internal governance may compound such vulnerabilities by complicating risk identification and mitigation. Shortcomings in these areas need to be remedied in a timely manner. And while banks grapple with these near-term risks, they need to continue to prepare for challenges related to the green and digital transitions, which are bound to affect their business models further down the road.

This is where the cautious element of my message comes in. While we can be pleased with how the banking system has evolved in recent years, we should also keep in mind that past success is not a reliable predictor of future performance. As we mark the tenth anniversary of the banking union, we should celebrate its achievements but also recognise that it is still incomplete. The fact that single supervisory and resolution mechanisms have been established in a short amount of time has certainly made our banking system stronger. But in order to cement its resilience even further, we need to create a truly integrated banking market, fine-tune our crisis management framework and address the gaps in our macroprudential framework.

Let me now elaborate on this message. I will first look at the health of the banking sector at the moment.

 

SSM

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