Report by the Expert Group to the Chair of the Supervisory Board of the ECB
The European Central Bank (ECB) Banking Supervision has established itself as an effective authority with a robust, risk-based supervisory methodology and a harmonized Supervisory Review and Evaluation Process (SREP), enhancing the resilience of Europe’s banking sector. The Expert Group suggests further improvements to increase efficiency by making supervision more integrated and risk-sensitive, recommending the following:
- Enhancing Risk-Based Supervision: Strengthen and integrate initiatives like the multi-year assessment and risk tolerance framework within daily supervision, framed by a solid supervisory culture.
- Improving SREP Integration: Streamline SREP processes by leveraging all supervisory assessments, allowing resources to focus on core challenges and management actions.
- Streamlining SREP Processes: Simplify the SREP process by reducing redundant modules, decoupling SREP from capital requirement decisions, and enhancing the Information Management System for better integration.
- Balancing Capital and Qualitative Measures: Shift focus from capital-centric supervision to qualitative measures that address risks like governance and climate-related vulnerabilities, aligning SREP scores with targeted management actions.
- Reforming Pillar 2 Requirements: Simplify the approach to determining Pillar 2 requirements by adopting a holistic method that minimizes ICAAP reliance and aligns with supervisory priorities, refining the annual assessment of capital needs and Pillar 2 guidance.
These adjustments aim to make ECB supervision more dynamic, risk-focused, and effective in addressing the evolving challenges in the banking sector.
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