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15 December 2022

SSM: LSI supervision report 2022


Less Significant Institutions (LSIs) represent around 18% of total banking assets in Europe while the number of LSIs has declined by about 1,000 since the inception of the SSM.

The macroeconomic disruptions brought about by the coronavirus (COVID-19) pandemic and major geopolitical tensions in conjunction with accumulated pressures from the sustained low interest rate environment of previous years have posed an unprecedented sequence of challenges to the financial system. This report examines key developments in the less significant institutions (LSI) sector, its structure and major activities aimed at addressing challenges from the supervisory perspective.

As part of the shared responsibilities in LSI supervision and oversight in the Single Supervisory Mechanism (SSM), the national competent authorities (NCAs) retain responsibility for the direct supervision of LSIs, which represent 18% (incl. FMIs) of banking assets – a share which has increased slightly since the inception of the SSM (2015: 16.7%). The ECB is responsible for authorising LSIs across the euro area and, through its LSI oversight function, ensures effective and consistent supervision in all SSM countries. Bulgaria and Croatia joined the list of SSM countries in October 2020, when the ECB entered into a close cooperation with Българска народна банка (the Bulgarian National Bank) and Hrvatska narodna banka.

Strong retail footprint for the LSI sector, with an increasing share of specialised business models.

The structure of the LSI sector in the SSM reflects a continued consolidation trend, albeit at a slower pace in 2021 than in previous years. Between the end of 2014 (inception of the SSM) and the end of 2021, the number of LSIs fell from more than 3,167 to about 2,089, with Germany, Austria and Italy accounting for the bulk of this reduction. In 2021 alone, the number reduced by about 90 entities. At the same time, the aggregate balance sheet of the LSI sector increased by 4.1% in 2021, a similar pace to significant institutions (SIs) (3.8%). This reflects a moderate growth in the loan portfolio and a significant increase in cash balances at central banks, but with major differences across countries. Generally, deposits from households represent the key funding source for LSIs at around 45% of total liabilities (including equity); however, like the structure of the loan book, the funding profile differs significantly across countries. In 2022 total assets have continued to grow strongly so far. In the second quarter of 2022 total assets rose by 2.4% compared to the end of 2021 to €4,910 billion, whereas only in a few countries assets decreased compared to the second quarter 2021....

 more at  SSM



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