Current regulatory priorities: Progress and development in European banking regulation

Daniele Nouy

Banks must be adaptable and act sustainably

On the occasion of the third anniversary of the European Banking Authority in November 2017, Danièle Nouy (Chair of the SSM Supervisory Board, ECB Banking Supervision) presented an outline of the successes and the progress of the European Banking Authority over the past three years.

She emphasised that the banks needed to be adaptable and act sustainably. Danièle Nouy counted milestones like the formation of a consistent European regulation system, SREP (Supervisory Review and Evaluation Process) and the new European resolution framework as achievements of the European Banking Authority. As an example, she stated that the correlation between the SREP results and the supervisory equity requirements had almost tripled from 26 to 76 percent since 2014. The Single Resolution Mechanism (SRM) had passed its first crucial test during the successful resolution of three large banks.

She said that adjustment towards consolidation was important to reduce the phenomenon of overbanking and the resulting low yields and inefficient banks. Additionally, she stated that banks had to adjust to the digital transformation and to compete with fintech companies or cooperate with them in order to generate new sources of income and reduce costs.
According to her, adjustments are needed in the context of cyber crime as well. Many banks had yet to strengthen their IT efficiency and security by investing in updates and upgrades.

Regarding sustainability, her speech focused on the problem of non-performing loans. Even with the share of NPLs having dropped on average in Europe in the past two years, she claimed that some banks had to make more of an effort to resolve the NPL problem. This should happen on the basis of the qualitative guideline of the ECB banking authority. Resolving this problem, however, was not enough, she stated. Banks were required to take sustainable and consistent measures to preclude a relapse. She mentioned that the amendment to the guideline, still in the consultation phase, included appropriate preventive measures.
In her opinion, a well-structured dialogue with each bank is a feasible contribution for the regulatory authority to provide. In a concluding statement, Danièle Nouy criticised the at times severe discrepancies between regulation timelines for NPLs in the various countries of the eurozone, which she deemed unacceptable for a banking union in their present form. As a step the national governments might take, she identified the optimization of legal systems and the expediting of court proceedings.

Danièle Nouy is a confirmed speaker for this year’s Handelsblatt Conference “European Banking Regulation”. Meet her on 19-21 November 2018 in Frankfurt, Germany.

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