Frank Elderson: Effective supervision through timely remediation

Contribution by Frank Elderson, Vice-Chair of the Supervisory Board of the ECB and Member of the Executive Board of the ECB, to the panel discussion “Effective supervision, enforcement and trust” at the 17th FMA Supervisory Conference on “Europe’s Financial Future: Sovereignty and Resilience”

European banking supervision is increasingly placing effectiveness and timely remediation of supervisory findings at the centre of its dialogue with banks. At the same time, there is a growing drive in Europe about simplifying regulation and supervision while maintaining strong standards. How do you see the relationship between simplification and effective supervision? Can a stronger focus on supervisory outcomes and impact also reduce unnecessary complexity for banks?

Simplification and effective supervision are not competing objectives. In fact, they reinforce one another. If we want to have a simpler supervisory dialogue that is easier for banks to navigate, we need supervision that is (i) more focused on material risks with a greater risk appetite, (ii) more efficient, and (iii) even more effective in driving concrete and timely improvements in banks with identified weaknesses.[1]

A stronger focus on supervisory effectiveness can actually help reduce undue complexity for banks: when supervisors concentrate on the issues that matter most for a bank’s safety and soundness, discussions become more targeted and the follow-up process for remediation becomes more focused until the bank has resolved the underlying issue. As a result, supervisors and banks can devote more time and attention to addressing the root causes of material weaknesses while addressing other issues with lower impact from a prudential perspective in a more proportionate manner. Such an approach can improve supervisory outcomes while reducing undue complexity and the burden for banks.[2]