Contribution by Frank Elderson, Vice-Chair of the Supervisory Board of the ECB and Member of the Govt Board of the ECB, on the BCBS worldwide convention of banking supervisors panel on “Navigating the brand new monetary panorama”
Bali, 30 September 2026
Banks are working in an more and more advanced setting formed by geopolitical fragmentation, fast technological change, risky vitality and commodity costs, rising inflation, demographic adjustments, rising interconnectedness with non-bank monetary establishments, and protracted local weather and nature-related dangers. What does it take for supervisors to stay efficient and impactful on this new actuality?
The problem dealing with supervisors right this moment will not be merely that there are extra dangers. Reasonably, the danger panorama is more and more unsure, interconnected and risky. However this doesn’t imply that supervisors ought to attempt to monitor the whole lot, all over the place, . Fairly the alternative. In a extra advanced world, efficient supervision requires clearer, forward-looking prioritisation. In European banking supervision, now we have due to this fact been adapting how we supervise. Our strategy rests on three mutually reinforcing pillars: sharper threat prioritisation, easier and extra environment friendly supervision and well timed remediation.
Supervisory threat urge for food specializing in the foundation causes
We’ve got discovered – typically the laborious means when crises hit – that merely complying with minimal capital necessities will not be sufficient to make sure banks stay protected and sound. The 2023 banking turmoil reminded us that banks can meet the entire formal capital and liquidity necessities, whereas underlying weaknesses in governance, threat tradition or enterprise fashions nonetheless proceed to build up beneath the floor, till it’s too late[1]. In our supervision we due to this fact concentrate on materials dangers wherever they come up – be they dangers to capital or liquidity, governance, operational resilience or structural threat drivers like local weather and nature associated or geopolitical dangers.[2]
Nevertheless, we should problem the belief that efficient supervision means each single threat, in each financial institution, in each element and do that yearly. Supervisors merely can’t function with a zero-risk-tolerance mindset.
By means of our devoted threat tolerance framework (RTF), now we have consciously elevated our supervisory threat tolerance. Danger-based supervision helps decide the place supervisory consideration ought to be targeted. The RTF goes one step additional: it clarifies how a lot residual supervisory threat will be accepted when sure areas are reviewed much less intensively or deferred. This is a crucial level as a result of de-prioritisation will not be a passive consequence or a resource-driven omission. It’s an lively and aware supervisory judgment, made inside an institutional framework and supported by a tradition that empowers supervisors to concentrate on what issues most. In observe, which means that lower-priority threat areas at particular person banks usually are not topic to the identical intensive supervisory scrutiny yearly.
Put merely: in a extra advanced threat setting, supervisors should grow to be extra targeted in the event that they need to stay efficient. The influence of this strategy is already rising, albeit that, naturally, it is going to take a while earlier than the total results are felt.
However a tradition shift in the direction of larger threat urge for food – one which prioritises substance over kind – will not be one thing supervisors can ship in isolation. Because the European Fee rightly highlighted in its current report on banking competitiveness,[3] making a much less threat averse and extra agile setting is a shared accountability. All stakeholders, together with banks, should be prepared to be a part of this cultural shift and take extra accountability for making use of the regulation primarily based on materiality. Which means additionally banks have to play their half by refraining from steady calls for for steerage looking for an ever-higher diploma of authorized certainty.
An easier and fewer prescriptive framework locations even larger weight on supervisory judgement, not much less. Regulation alone can’t absolutely seize in each precision each rising threat or idiosyncratic enterprise mannequin. Any try to take action would end in an more and more advanced rulebook and will create new alternatives for regulatory arbitrage. Robust supervisory judgement, and the willingness to behave when dangers usually are not adequately managed, are due to this fact extra essential than ever.
Growing effectivity by way of simplification
The second pillar of efficient supervision is larger effectivity.
For instance as a part of our Subsequent Degree Supervision initiative, now we have reviewed supervisory processes from finish to finish to determine the place we are able to transfer quicker, scale back duplication and ask just for data that’s strictly vital.[4]
Let me be clear: this isn’t solely about trimming down procedures. It’s a option to minimize down on undue complexity and release supervisory capability for a extra targeted evaluation of fabric dangers, with out decreasing guardrails or weakening resilience.
It’s about delivering the identical degree of security and soundness with a framework that’s simpler to navigate for each banks and supervisors.
And we’re already seeing tangible outcomes.
For instance, now we have reviewed greater than 100 supervisory steerage publications to make them extra concise and user-friendly.[5] Round 40 have been discontinued, whereas others have been revised in a focused method and a number of other are present process a extra in-depth evaluate.
Or take the approval of straightforward securitisation transactions. As a part of our simplification work now we have decreased processing days for standardised and fewer dangerous securitisations from three months to a median of round seven days.
We’ve got additionally decreased stress testing information factors by round 55%, shortened turnaround instances in fit-and-proper assessments by way of digitalisation and AI-enabled instruments, and decreased approval timelines for capital associated determination from a number of months to lower than six days.
In sum, our simplification actions have already began to yield tangible advantages, and we are going to proceed rolling out these initiatives all year long. The intention is easy: extra concentrate on materials dangers, whereas preserving solely the mandatory procedural safeguards
Guaranteeing well timed remediation by way of escalation and full use of the supervisory toolkit
However rising threat urge for food and effectivity are solely a part of the story.
Finally, efficient supervision will not be solely in regards to the materials dangers it identifies, however about whether or not banks deal with these dangers in a well timed method and lasting impact.
Supervision should result in change the place change is required. Supervisors have to have the powers, means and willingness to behave to ensure that findings are addressed in good time. And once they have the powers, means and willingness to behave, when the circumstances require so supervisors ought to certainly do exactly that: act. And never simply act: act in time and with the suitable diploma of forcefulness and tenacity. The March 2023 banking turmoil underscored how pricey delays will be when recognized weaknesses stay unresolved. That is additionally a degree on which the varied IMF and BCBS autopsy stories are all in settlement.[6]
A structured escalation framework is important to driving concrete change at banks. Supervisors should set out remediation paths which might be proportionate, time-bound and root-cause-oriented – they usually should be ready to well timed escalate to enforcement measures when vital. Well timed remediation will not be sufficient if it stays superficial. Findings must be addressed durably, on the degree of the underlying weaknesses that gave rise to them, whether or not these relate to banks’ governance, threat administration, inside controls or enterprise mannequin. By remedying root causes, not solely present, but in addition doable future manifestations of such root causes are addressed, thus killing many birds with one stone.
And to try this, supervisors want a complete toolkit, together with capital necessities but in addition qualitative measures That, when applicable, can require banks to vary governance, controls, processes, threat administration or business-model practices. For instance, European banking supervision makes use of qualitative necessities broadly and the necessities span from requiring banks to strengthen threat administration to imposing enterprise restrictions or periodic penalty funds as an enforcement software. Every of those devices has an essential place within the supervisory toolkit, and supervisors should be ready to make use of the best instruments on the proper time,[7] contemplating the materiality of the weak point, the persistence of the difficulty in addition to the financial institution’s responsiveness.
Policymakers are more and more specializing in development and competitiveness. How can worldwide requirements and supervisory cooperation assist be certain that these targets are pursued in a means that helps monetary stability, somewhat than undermining it?
The place to begin is to recognise that development, banking sector competitiveness and monetary stability usually are not competing targets. The truth is, they reinforce each other.
A resilient banking system is a precondition for sustainable financial development. The worldwide monetary disaster confirmed very clearly that when monetary stability is undermined, the prices to the actual economic system will be substantial and long-lasting.[8] And, extra lately, the pandemic, the vitality shock following Russia’s invasion of Ukraine and the battle within the Center East have all proven {that a} resilient banking sector can assist the economic system in difficult instances.
Finally, banking sector competitiveness can’t be captured by a single metric, comparable to profitability.[9] Competitiveness is dependent upon whether or not banks are resilient, environment friendly and revolutionary, and whether or not they can deploy new applied sciences shortly and successfully. Merely lowering prudential requirements and capital necessities is not any assure of larger competitiveness or lending. It could scale back resilience and will simply as simply end in extra share buybacks and better distribution to shareholders. In different phrases, robust prudential requirements usually are not an impediment to competitiveness. They’re one in every of its foundations.
Worldwide requirements are essential for resilience and a degree enjoying discipline
The actual query is due to this fact not whether or not we want robust requirements, however how we are able to make them as
efficient, proportionate and coherent as doable. That is the place worldwide requirements play an essential function in safeguarding resilience and sustaining a degree enjoying discipline throughout jurisdictions.
If we didn’t have already got a Basel Committee on Banking Supervision and a Monetary Stability Board, the present geopolitical fragmentation could be a compelling purpose to create them. Worldwide requirements act as a standard basis. They set up minimal expectations whereas preserving flexibility for native implementation. However there’s a robust case for avoiding pointless divergence, significantly the place banks function throughout a number of markets. A fragmented regulatory panorama could create a race to the underside whereas including complexity and prices. The well timed and full implementation of Basel III due to this fact stays essential.
On the identical time, as we simplify the prudential framework and enhance coordination between authorities, we should protect one of many defining strengths of efficient supervision: the power to determine and deal with dangers at particular person banks. Widespread guidelines present an important and risk-based basis, whereas banks can differ materially of their enterprise fashions, governance, controls and publicity to rising dangers. Supervisors due to this fact want ample scope to make use of bank-specific qualitative and quantitative measures the place warranted.
Shut cooperation stays essential in a difficult threat setting
The identical applies to supervisory cooperation. The dangers we face are world – they don’t cease at borders. Tackling them successfully requires coordination and cooperation amongst authorities.
The fast development of the non-bank monetary sector offers an illustration. The sector has doubled in measurement since 2008 and now accounts for over half of monetary sector property within the euro space. But elements of the sector stay comparatively opaque. Knowledge gaps and restricted transparency could make it troublesome to totally assess how dangers could unfold between banks and non-banks during times of stress. That’s why we’re calling for larger transparency and higher reporting for actors on personal markets. We’d like worldwide coverage responses to make sure that pockets of vulnerability are adequately addressed.[10]
However, more and more, dangers additionally demand cooperation past prudential authorities.
Take cyber resilience. The emergence of more and more subtle AI-enabled cyberattacks is a gamechanger within the menace panorama. The velocity, scale and accessibility of superior cyber capabilities are rising quickly. Because of this European banking supervision is working intently on strengthening banks’ operational resilience to cyber dangers, not solely with the banks themselves, but in addition with cybersecurity authorities.
And the problem to banks’ operational resilience doesn’t cease with AI. Quantum computing is already showing on the horizon and will grow to be broadly obtainable by 2030. Quantum threat to cryptography is already a threat as delicate, encrypted data will be collected right this moment and saved with the expectation that future technological advances could enable it to be decrypted in a “harvest now, decrypt later” vogue. To remain forward of those developments, supervisors more and more want to interact with specialists far past the monetary sector.
The identical applies to the dangers from the continued local weather and nature crises. To higher mannequin the transmission channels of local weather and nature-related dangers to the economic system and banks’ steadiness sheets, we’re more and more teaming up with the scientific neighborhood, together with local weather scientists and biodiversity specialists.
The chance panorama is evolving quickly. New applied sciences are rising, present dangers are altering in nature, scale and velocity, and monetary techniques have gotten more and more interconnected. Cooperation is due to this fact not merely a perk – it’s a necessity. Worldwide requirements and supervisory cooperation are important if we’re to assist development and competitiveness whereas preserving the monetary stability on which each in the end rely.
