Elderson says supervisors should raise risk appetite

• Elderson said supervisors should focus on material risks and accept more residual risk in lower-priority areas.
• He said more than 100 guidance publications have been reviewed, with around 40 discontinued.
• He said simple securitisation approvals now take around seven days on average, down from three months.

Frank Elderson said European banking supervisors are adapting to a more uncertain risk landscape by sharpening priorities, simplifying processes and speeding remediation. He said the approach rests on three pillars: risk prioritisation, efficiency and timely action.

Elderson says supervisors should raise risk appetite

Risk appetite

Elderson said supervisors cannot examine every risk, at every bank, in full detail each year. He said the ECB’s risk tolerance framework lets supervisors accept more residual risk when some areas are reviewed less intensively or deferred.

He said lower-priority risk areas at individual banks are not subject to the same intensive scrutiny every year. He added that banks also need to take responsibility and should not keep asking for more guidance in search of ever-higher legal certainty.

Simplification

Elderson said the ECB’s Next Level Supervision initiative is reviewing supervisory processes end to end. He said the aim is to move faster, reduce duplication and request only information that is strictly necessary.

He said the ECB has reviewed more than 100 supervisory guidance publications, with around 40 discontinued. Others have been revised, and several are still under deeper review.

He said processing times for standardised, less risky securitisations have been cut to around seven days from three months. He also said stress testing data points are down by around 55% and approval timelines for capital-related decisions have fallen to less than six days.

Remediation

Elderson said effective supervision depends on banks fixing problems in a timely and lasting way. He said supervisors must be willing to escalate to enforcement when necessary and use capital and qualitative measures where appropriate.

He said European banking supervision uses qualitative requirements widely. He cited requirements that reinforce risk management, as well as business restrictions and periodic penalty payments.

Cooperation

Elderson said growth, competitiveness and financial stability reinforce one another. He said international standards remain important for resilience and a level playing field, and warned against unnecessary divergence across jurisdictions.

He said the non-bank financial sector has doubled in size since 2008 and now accounts for over half of financial sector assets in the euro area. He also said parts of the sector remain opaque and that greater transparency and better reporting are needed for private markets.

Elderson said increasingly sophisticated AI-enabled cyberattacks are a gamechanger and that quantum computing could become widely available by 2030. He also said supervisors are working more closely with cybersecurity authorities, scientists and biodiversity experts.