ECB's Lautenschläger: Four years of Banking Union: where do we stand?

13 November 2018

Sabine Lautenschläger, Member of the Executive Board of the ECB and Vice-Chair of the Supervisory Board of the ECB, reflects on the state of the banking union and the Single Supervisory Mechanism, or SSM.

Four years ago, at the start of this ambitious project, scepticism was rife. Despite the general consensus that European supervision and a banking union were necessary complements to a monetary union, many questioned whether this was a realistic goal.

Tough and fair European supervision, backed by tougher regulation, has contributed to making european banking sector significantly safer and sounder. Mrs Lautenschläger highlights just two of many relevant issues:

• In general, banks now hold more and better-quality capital than in the past. The fully-loaded CET1 ratio of significant institutions was 13.8% in the second quarter of this year, up by 2.6 percentage points compared with the last quarter of 2014[1].
• Banks are holding significantly lower levels of NPLs on their balance sheets. For banks under direct ECB supervision, the gross NPL ratio fell from €958 billion when the SSM was launched to €688 billion in the first quarter of this year. There is still some work to do here, and it should be done quickly while the sun is still shining.

Still banks must continue to improve in several areas. And now is a good point to stress that financial stability is also good for the banks themselves. For a start, many banks should take advantage of the good times to continue cleaning up their balance sheets and adapt their business models to face upcoming challenges – the current economic environment is as good as it gets!

All banks also need to further strengthen their risk management frameworks, IT systems and internal capital and liquidity management.

But not only banks still have work to do. In this vein, she mentions several relevant points:

• There are still approximately 30 microprudential national options and discretions addressed to Member States.
• Many important European tools, such as fit and proper assessments and the early intervention measures, are covered by directives which have to be transposed into national law. This adds to the fragmentation and leads to an uneven playing field.
• There is still lack harmonised supervision of third-country branches and investment firms.
• For some important directives, such as the anti-money laundering one, transposition into national law has been held up or hasn’t even started.

Full speech

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