Blog post by Frank Elderson, Vice-Chair of the Supervisory Board of the ECB, and Elizabeth McCaul, Member of the Supervisory Board of the ECB
At the beginning of this year, two German banks appointed women to
their management boards for the first time since they were founded over
100 years ago. This decision is another step in the global journey
towards diversifying banks’ management bodies, where female
representation is growing. Last year, a global US bank made history when
it appointed the first female CEO of a major Wall Street firm.
look beyond the headlines, though, suggests there is much more to do.
According to the European Banking Authority (EBA), only 8% of CEOs of
European credit and investment institutions are women; and only around a
fifth of the positions in the management bodies of Europe’s largest
banks are held by women. Women on management boards of most institutions also continue to be paid less. And although European law requires banks to have a diversity policy, less than two-thirds of them actually do.
With these findings in mind, the European Central Bank (ECB) today launched a public consultation
on a draft version of its revised and more comprehensive Guide to fit
and proper assessments. The new version of the Guide introduces some
additional dimensions to the ECB’s assessment of the collective
suitability of bank boards. One of these new dimensions is aimed at
fostering gender diversity within the boards of European banks.
revised Guide has two main objectives. The first is to explain in
greater detail the existing policies applied by the ECB when assessing
the suitability of members of the management bodies of significant
banks. The second is to introduce and explain the enhanced supervisory
expectations regarding the collective suitability of boards, the
individual accountability of board members and the new criteria that
will be used to reassess them. This enhanced approach to fit and proper
supervision marks another step in the ECB’s efforts to promote diversity
within the management bodies of European banks as a necessary condition
for the sounder governance of credit institutions and thus a safer
From now on, in addition to assessing the
adequacy of collective knowledge, skills and experience when determining
whether a bank’s management body as a whole is suited to effectively
steer a bank, the ECB will also look closely at the sufficiency of
gender diversity of bank boards.
In this blog post, we will
reiterate some of the benefits that diverse boards bring to
organisations and describe some of the upcoming measures that ECB
Banking Supervision is planning to implement to help ensure that
European bank boards are diverse.
Diversity leads to good governance
independent boards are the cornerstone of sound organisational
governance. Broadly speaking, boards are expected to provide effective
oversight of a bank’s strategy and operations, challenging these when
deemed necessary. They are also expected to promote responsible
decision-making and mitigate the risks that banks face at any given
moment. Ultimately, a bank’s resilience hinges on it having well-defined
lines of responsibility and effective risk management practices, as
well as checks and balances at all levels – starting with the board.
Diversity in leadership has long been recognised as crucial for effective governance.
It fosters independence of opinions and the openness to critically
challenge management decisions. Boards that are composed of members
sufficiently diverse in gender, age, geographical provenance, and
educational and professional background incorporate a richer set of
information, experiences and values – and this results in better
decision-making and greater efficiency in the way banks operate.
diverse board is also better equipped to understand its stakeholders
and its employees, as well as customers with varied backgrounds, which
can help expand its customer base. Recent evidence gathered by the EBA
also suggests that more diverse management boards are more likely to
achieve higher returns.
European legislation recognises the benefits of diversity in bank boards. The Capital Requirements Directive
explicitly requires credit institutions to use diversity as one of the
criteria when appointing members of management bodies and to promote
diversity through recruitment.
Institutions are formally required to have a diversity policy and to
take action if gender diversity remains below a certain threshold.
The ECB’s efforts to promote diversity
ECB supports diversity and its promotion within the management bodies
of the banks under our supervision. Since 2014 the ECB has been
responsible for taking decisions on the appointment of all members of
the management bodies of the significant banks that fall under its
direct supervision. Since its inception, ECB Banking Supervision has
directly intertwined the fit and proper assessment – including findings
on diversity – with day-to-day supervision through different channels.
First, failures to respect self-imposed gender targets are brought to a
bank’s attention as part of ongoing supervision. Second,
diversity-related deficiencies identified during fit and proper
assessments feed into the governance assessments included in the annual
Supervisory Review and Evaluation Process.
These actions have
borne results. Progress has been made in Europe in recent years
regarding bank governance, with ECB Banking Supervision raising the bar
in terms of what is expected of bank boards. Since 2015, the
representation of women has gradually increased, but change is slow to
take hold and more clearly needs to be done.
In this context, and
to continue our broader work on diversity, we decided to further
strengthen and streamline the assessment of diversity as a component of
collective suitability whenever national legislation allows us to do so.
In Member States where national law requires institutions to
make appointments in line with their internal policies or to have a
fixed percentage of female members of the management body, the ECB will
make a recommendation or impose an obligation in the fit and proper
decision to respect gender targets in current or upcoming appointments.
Furthermore, in the new fit and proper questionnaire we will ask
institutions whether they have any targets for diversity and whether
they are meeting them. Whenever targets are not met, we will issue
recommendations to remedy such imbalances. If there are manifest
breaches of diversity strategies, we may need to obligate banks to
comply with these strategies.
We will also provide more clarity
regarding our expectations on gender diversity and diversity more
generally, so that banks know where they stand in relation to where we’d
like them to be, and in which specific areas they need to make
progress. In cooperation with the national competent authorities, we
will further develop policies and roll out other medium and long-term
supervisory measures aimed at fostering diversity within the boards of
Diversity in leadership has
long been recognised as crucial for effective governance – be it
diversity of experience, skills, values, gender or any other dimension.
We also recognise that diversity is not limited to gender and that
people differ in terms of nationality, religion, sexual orientation,
ethnic origin, age, disability and cultural background. In Europe, the
more diverse a bank board is, the more open, balanced and robust its
decision-making processes are, and the more efficient, resilient and
profitable the bank is likely to be.
As we enter the third
decade of the century, the journey towards diversity seems to be picking
up speed. But we still have quite a few milestones to reach. Since our
inception, we have pushed for more diversity in the management bodies of
European banks through our ongoing supervision. The European banking
landscape is beginning to include more women, but progress is still too
slow. This is why the ECB is taking concrete steps as part of its
supervisory mandate to promote more diverse boards and more diverse
banks, across all dimensions. The launch of this public consultation on
an enhanced approach to fit and proper supervision is just the latest
We will continue to closely monitor banks’ progress in
meeting diversity targets, and stand ready to adjust the Guide to fit
and proper assessments – as well as any other aspects of our ongoing
supervision – to the lessons learned in this area.
In our joint
efforts, the goal is clear: that our institution, the banks that we
supervise and financial institutions at large become more effective and
safer, and that they are a true reflection of the population that they
ultimately serve – the people of Europe.
A shorter version of this blog post was published as an opinion
piece in Les Echos (France), Handelsblatt (Germany), Il Sole 24 Ore
(Italy), Het Financieele Dagblad (Netherlands), Cinco Días (Spain).
© ECB - European Central Bank
Hover over the blue highlighted
text to view the acronym meaning
over these icons for more information
No Comments for this Article