Keynote speech by Frank Elderson, Member of the Government Board of the ECB and Vice-Chair of the Supervisory Board of the ECB, on the ECB and EUI Banking Governance Excessive-Stage Seminar “Board of the Future”
Florence, 27 October 2025
It’s a nice pleasure to be with you right here in Florence.
I’m certain that in your method to this venue a lot of you will have noticed a number of the breathtaking examples of Florentine Renaissance structure: Brunelleschi’s dome of the cathedral, Alberti’s façade of Santa Maria Novella or the Pazzi chapel in Santa Croce.
By overcoming the usually convoluted Gothic ornaments in favour of classical rules, Florence transitioned from medieval complexity to the cradle of the Renaissance that we all know at this time.
The Florentine Renaissance confirmed that progress isn’t about including extra layers of complexity, however about making use of enduring rules equivalent to readability, proportion and construction.
In that sense the Renaissance was a aware act of simplification, again from the ornaments and a number of layers to the strong foundational parts that actually matter.
This analogy could not be extra well timed at this time, as voices are rising louder that banking regulation and supervision have given rise to undue complexities and ought to be simplified.
In my remarks I’ll argue that simplification is certainly fascinating and achievable and clarify the steps the ECB is taking to make it a actuality. However simply because the Florentine architects achieved simplification by reverting to classical foundations, at this time’s supervisors want to cut back overlaps, undue complexity and prices with out damaging the strong foundations on which the European banking system is constructed: we have to simplify with out compromising resilience.
How can supervisory guides assist?
On this context, let me first make clear the position of supervisory guides[1] which have not too long ago been topic to some debate.
The guides developed by the ECB over the past decade serve distinct functions. Guides are issued to make sure consistency in our strategy to the supervision of banks throughout the banking union, and to supply transparency on how the ECB interprets and applies the related provisions of Union regulation, in addition to the processes it follows.
They could additionally set out supervisory expectations or disseminate good practices that we now have noticed in our interactions with banks equivalent to within the instance of our draft Information on governance and danger tradition that we revealed in July 2024[2]. The Information units out supervisory expectations in these areas, bearing in mind the varied governance constructions and company preparations stemming from the totally different nationwide legal guidelines throughout Europe.[3] We acquired very beneficial suggestions from the business and so as to guarantee consistency, keep away from overlaps and undue layers of complexity, we may even have in mind the result of the European Banking Authority’s (EBA) public session on the assessment of their very own Tips on Inner Governance. We anticipate this can deliver the publication of the ultimate Information nicely into 2026.
Having listened fastidiously to stakeholders and the business, we perceive that typically there are nonetheless doubts concerning the authorized nature of our guides. In instances the place supervisors and banks alike connect nice significance to lowering undue complexities, I wish to shed the clearest of lights on this very related subject. So, let’s go one degree deeper and unravel the various kinds of content material {that a} supervisory information might embrace in additional element. In doing so, I’ll distinguish between binding obligations, supervisory expectations and good practices.
Binding obligations
In the beginning, legally binding necessities are solely derived from instantly relevant European laws or directives as transposed into nationwide regulation. When referring to binding necessities set out in laws, the ECB supervisory guides use binding language. For instance, after we state that banks “should”, “must”, “shall”, or “are required to’’ act in a sure approach, it’s as a result of they’re obliged to take action by instantly relevant European or nationwide regulation. In such instances we clearly discuss with the precise authorized provisions. As I mentioned, these obligations are created by the legislator, not by us as a supervisor. We select to incorporate these obligations in our guides as a result of it makes life less complicated for the banks to have the related guidelines and our interpretation of them in a single place.
Certainly, the place binding obligations are broadly formulated, the ECB might provide its interpretation of the ideas utilized by the legislator[4]. Initially, the ECB regards related case regulation from the Courtroom of Justice which may be obtainable, because the Courtroom of Justice has the last word say on the proper interpretation of EU laws. Within the absence of related steerage from the Courtroom, the ECB bases its interpretation on current EBA Tips[5], or, if they don’t seem to be obtainable, by itself view because the supervisory authority charged with making certain the applying of the prudential framework. When doing so, the ECB tries to assist banks’ compliance with the related authorized provisions. This additionally promotes consistency within the ECB’s supervisory strategy and fosters transparency. Banks might, in fact, disagree with the ECB’s interpretation when utilized in a particular case and problem that specific ECB resolution, both by submitting a request to the Administrative Board of Overview[6], or by bringing a authorized motion towards the ECB earlier than the Courtroom of Justice.[7] And banks haven’t shied away from standing up for his or her pursuits by initiating authorized proceedings towards the ECB.[8]
Non-legally binding expectations
Second, some areas of the prudential framework aren’t or solely partially coated by binding obligations set by the legislator. Nonetheless, supervisors should still want to steer banks’ motion in these areas in a selected path to make sure acceptable danger administration and protection. That is the place supervisory expectations might come into play.
Let me be crystal-clear: these supervisory expectations don’t create new binding obligations on the banks. The ECB due to this fact communicates its supervisory expectations utilizing non-binding language equivalent to “the ECB expects banks to…” or “banks ought to goal to”. The ECB publishes supervisory expectations to reinforce transparency about its supervisory strategy.
Good practices
And third, there are good practices that characterize fascinating behaviours in gentle of the necessities of the authorized framework or the ECB’s expectations. In banking supervision, the ECB usually speaks of “good practices” or typically ”sound practices” or ”noticed practices” to determine particular practices that in our judgment facilitate banks’ compliance with legally binding necessities or alignment with supervisory expectations as regards correct protection and administration of prudential dangers. The aim of those statements is due to this fact to not current “greatest practices”, as a result of this may not do justice to the different sorts, enterprise fashions and sizes of banks the ECB supervises. A financial institution can absolutely meet all regulatory necessities with out following any of the examples listed. This is the reason we welcome suggestions and different examples from banks the place totally different practices have confirmed more practical, as they could in flip enrich our compendium of fine practices.
Let me be clear once more: the nice practices we publish don’t create new binding obligations on the banks. They’re shared as illustrative examples of approaches that, in our expertise, have labored nicely in sure contexts. Their function is to foster transparency and assist banks mirror on attainable methods to strengthen their very own danger administration and governance frameworks. Consequently, the ECB communicates good practices through the use of language equivalent to ‘’the ECB recommends”, “advises”, or “considers good apply”.[9]
How does all of this work in apply?
The place to begin of the interactions between supervisors and banks is clearly the regulatory framework. In any case, as supervisors we aren’t rule makers – that’s the position of the legislator. We do our job – making certain banks’ security and soundness – as rule takers on the premise of the relevant regulatory framework as interpreted by the Courtroom, or in gentle of the related EBA Tips, or following our personal interpretation which can be contained in a information, because the case is likely to be. After we determine shortcomings in the best way a given financial institution is assembly the regulatory necessities, we take motion to deliver it again to full compliance with the prudential framework. The particular sort of measure is chosen having regard to the peculiarities of the case, the character of the shortcoming, its severity and different related circumstances to make sure a proportionate supervisory reply.
Past compliance with binding necessities, we additionally talk about with banks the prudential dangers they’re or is likely to be uncovered to and their plans about the best way to handle and canopy these dangers. When assessing banks’ plans within the context of our supervisory dialogue we might think about the expectations set out in our guides. This dialogue usually ends positively, with the ECB discovering that, having thought-about the financial institution’s explanations and specific circumstances, the prudential dangers it’s, or is likely to be, uncovered to are sufficiently coated and adequately managed. It’s only when this isn’t the case that the ECB takes additional supervisory steps, which -– following an escalated strategy when acceptable – might find yourself with requiring the financial institution, as an illustration, to strengthen particular areas of its inside management framework or maintain extra capital.
Does this imply that we’re implementing the ECB’s expectations in these specific cases? In no way. We solely take supervisory measures if we’re satisfied that not all of the related prudential dangers to which the financial institution is uncovered are adequately addressed. And people supervisory measures don’t impose our expectations in a binding method: these measures are designed and tailor-made to the precise circumstances of the given financial institution to make sure correct protection and administration of all its prudential dangers.
Lastly, good practices don’t play some other position in our interactions with banks than offering them with some extent of reference for designing their programs and operations in a fashion that has confirmed sound for different banks. Clearly, they’re by no means a floor for enforceable supervisory measures, as not each apply is related for each financial institution, and establishments might take totally different routes to attain the identical sound outcomes.
Lowering complexity by making supervision extra environment friendly, efficient and risk-based
Whereas it’s clearly important to speak exactly on what’s necessary and what’s to not facilitate compliance with the complicated regulatory framework and correct protection and administration of related prudential dangers, it’s however one of many parts of our broader drive in direction of extra environment friendly, efficient and risk-based supervision.[10] Let me point out numerous different parts as nicely.
On the coronary heart of our cultural transformation is a complete reform of the Supervisory Overview and Analysis Course of (SREP) which we already set in movement again in 2022. Now we have embraced risk-based supervision by initiatives like the danger tolerance framework and a multi-year strategy, which permit us to extra successfully focus assets on probably the most related dangers. By integrating supervisory actions extra seamlessly, leveraging the complete breadth of our supervisory toolkit, enhancing our communication to banks, and lowering unwarranted supervisory burden, we proceed to reinforce our capacity to handle challenges dynamically. At this time, these reforms are already delivering outcomes: the SREP is leaner and focuses on probably the most related dangers, whereas supervisors talk key findings to banks in a timelier method.[11]
One other instance of simplification is our drive to cut back the reporting prices by establishing an built-in reporting framework accessible to statistical, prudential and determination authorities.
Furthermore, we’re additionally lowering undue complexities by streamlining our supervisory processes in our “next-level supervision” challenge.[12] This covers areas equivalent to capital-related selections, on-site inspections and inside fashions. Within the space of governance, with funding in expertise we now have elevated effectivity within the subject of match and correct evaluation. For instance, we diminished the typical processing time from 109 days in 2023 to 97 days in 2024 and for non-complex instances to as little as 61 days that means that we are able to dedicate extra time and assets to complicated instances in step with our risk-based strategy.[13]
Lastly, the ECB’s Governing Council created the Excessive-Stage Activity Drive on Simplification to develop proposals for simplifying the European prudential regulatory, supervisory and reporting framework, whereas nonetheless sustaining our sturdy and resilient banking sector in Europe. The high-level process pressure plans to ship its proposals for simplification to the Governing Council by the top of 2025, after which they are going to be offered to the European Fee.
Conclusion
Let me conclude.
As we’re addressing the unwarranted complexities within the European regulatory and supervisory framework, the insights from the Florentine Renaissance couldn’t be extra well timed.
Simplification doesn’t imply dismantling the foundations of resilience.
The Renaissance architects of Florence mastered the artwork of simplification by reverting to the strong classical foundations. In doing in order that they have been striving to cut back undue complexities with out, crucially, dismantling the very bedrock on which steady edifices are constructed.
In the identical vein, allow us to sort out overlaps, unwarranted complexity and undue prices with out compromising the foundations of resilience on which our steady European banking system lies.
Allow us to attempt for easier but stronger guidelines that enable us to oversee in probably the most environment friendly and efficient method. To guarantee that banks stay resilient to allow them to assist the true economic system in each good and dangerous instances. As a result of sturdy and resilient banks are nothing lower than the bedrock of long-term competitiveness.
Thanks on your consideration.
