29 March 2023

SSM's Enria: A new stage for European banking supervision

I would like to say upfront that restarting the debate on regulatory reforms would not be productive. With the implementation of the Basel Committee’s final package,...we have all the tools we need. The focus of our debate should be much more on effective supervision.

Following recent market turmoil the debate on banking regulation and supervision has again hit the headlines. I am sure Yasmin Osman will raise questions on this topic in our conversation later on, but I would like to say upfront that restarting the debate on regulatory reforms would not be productive. With the implementation of the Basel Committee’s final package, which once again I hope will be as faithful to the international standards as possible in all G20 jurisdictions, we have all the tools we need. The focus of our debate should be much more on effective supervision.

In this vein, today I want to explain how European banking supervision has developed and matured since its start-up phase. Through this development, the way we conduct supervision has been moving from one that is predominantly rules-based and heavily codified, to one that is more risk-focused and adaptable to rapidly changing economic circumstances. We are increasingly concentrating our supervisory resources on the risks that are most material. And as this implies increased discretion for our supervisory teams, we are also implementing more rigorous internal controls and more transparency and accountability towards our stakeholders. Our style of supervision has sometimes been criticised as excessively heavy handed and conservative. I believe we should aim at enhancing our efficiency, also with an eye on the compliance burden we impose on our banks, while in no way lowering our guard and actually strengthening our monitoring of risks and risk controls at the banks we supervise.

The early years of European banking supervision

European banking supervision has been operational for nearly ten years now. In that time, we have grown and developed. In human development, it is recognised that what makes you who you are is a mix of nature and nurture. I like to think the same is true for European banking supervision. Like any child approaching double digits, we have become the character we are through a combination of our institutional DNA and the experience we have had in the environment we’ve grown up in.

The European Union has been called a form of “regulatory governance” and it is in the DNA of the ECB as an EU institution to codify its practices into detailed rules, manuals, guidelines and regulations. This process of codification was crucial for our early years. At its launch, the Single Supervisory Mechanism (SSM) was composed of the ECB and national competent authorities (NCAs) from 19 different Member States, each with its own processes, culture and practices. Establishing a consistent supervisory process towards the significant banks in the jurisdictions over which the ECB had assumed supervisory responsibility was a top priority. Codifying our supervisory practices – sometimes into long and detailed internal manuals – was how we overcame our initial national differences, to create a common culture and support the level playing field for European banks.

I am convinced this process of codification was the right way to go, and critical to the success of the first steps – I am tempted to say giant leaps – that we took in our early days.

Let me mention three main areas of work that strongly shaped, in my view, the level playing field delivered by the SSM.

The comprehensive assessment that we conducted at the beginning of the SSM enhanced the transparency of the balance sheets of significant banks and helped to rebuild investor confidence prior to the ECB assuming its supervisory tasks in November 2014. The outcome was transparent and credible, boosting the European banking sector. Banks strengthened their balance sheets. We took over supervision making sure that we had clear sight of significant institutions’ asset quality and that any capital shortfalls were addressed.

SSM

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