The European Central Bank to Crack Down on Lenders
The European Central Bank (ECB) is set to crack down on lenders that are slow to deal with fixes the supervisor demands of them, after growing frustrated with a perceived lack of responsiveness.
The ECB has issued more than 5,000 supervisory measures a year on average since it started overseeing the euro region’s top banks in late 2014. But banks have at times been slow to respond to the watchdog’s demands, creating a backlog that the ECB is now trying to reduce in an effort to make its oversight more effective.
Reasons Behind the Crackdown
The central bank, which does not publish data on how quickly banks process their action points, has grown frustrated with the speed of action and is planning to push banks harder next year to tackle the backlog, sources briefed on the matter said.
A spokesperson for the ECB declined to comment.
Impact on Banks
As part of the ECB’s crackdown, banks will be pressed to have a plan for reducing their stock of findings and measures, and to demonstrate that they have capacity to carry out those plans, one source said. Lenders that repeatedly miss deadlines will be in particular focus, and those not progressing could face fines, the source added.
Several bank executives, who asked for anonymity, said their institutions had been struggling with the volume of demands, and that their stock of outstanding findings and measures had been swelling. A senior manager at one of the biggest US banks said the ECB’s demands were so great that they outstripped the combined requests from all the firm’s other regulators.
Background on the ECB’s Measures
The ECB’s measures are graded by severity and can touch on a broad range of issues, from managing market risk to governance. They can come from the onsite supervision team conducting special investigations, such as the ECB’s probe this year into leveraged finance. Ordinary regulatory interactions, such as the ECB’s Supervisory Review and Evaluation Process, or SREP, can also result in such orders.
Last year’s independent review of the SREP process – the so-called ‘wise persons report’ – cited issues with the “follow-through process” for some orders, because “the late or inadequate remediation of qualitative measures does not trigger any automatic escalation or reassessment”.
Outlook for 2025-2027
Outlining its priorities for 2025 to 2027, the ECB in December flagged a “progressive shift in focus from risk identification to risk remediation” next year.
“Accordingly, banks with unresolved material shortcomings will be asked to step up their efforts to fully comply with supervisory expectations and implement sound remedial action plans in a timely manner,” the ECB said.
Conclusion
The European Central Bank is cracking down on lenders that are slow to respond to its demands, in an effort to make its oversight more effective. The crackdown is expected to impact banks with outstanding findings and measures, with those that repeatedly miss deadlines potentially facing fines. The ECB has outlined its priorities for 2025-2027, with a focus on risk remediation and compliance with supervisory expectations.
FAQs
Q: Why is the European Central Bank cracking down on lenders?
A: The ECB is cracking down on lenders because it is growing frustrated with a perceived lack of responsiveness to its demands.
Q: What kind of measures has the ECB issued to banks?
A: The ECB has issued more than 5,000 supervisory measures a year on average since 2014, covering a broad range of issues from managing market risk to governance.
Q: What is the impact of the crackdown on banks?
A: Banks with outstanding findings and measures will be pressed to have a plan for reducing their stock of findings and measures, and to demonstrate that they have capacity to carry out those plans. Those that repeatedly miss deadlines may face fines.
Q: What are the ECB’s priorities for 2025-2027?
A: The ECB has flagged a “progressive shift in focus from risk identification to risk remediation” next year, with a focus on banks with unresolved material shortcomings.
