European Central Bank (ECB) Supervisory Board member Sharon Donnery argued that regulatory and supervisory reforms should improve prudential protection or reduce costs while preserving banks’ resilience. In a keynote speech at the 2026 IIF European Banking Regulation and Supervision Colloquium, she backed the Financial Stability Board’s draft modernisation principles. The approach reinforces the ECB’s existing agenda of removing duplication and concentrating supervision on material risks without weakening prudential standards. More selective supervision requires reliable information and discretion to intensify scrutiny when risks change. Less intensive reviews do not reduce banks’ responsibility to manage risks, and governance weaknesses can warrant intervention before measurable losses emerge. The ECB’s recent geopolitical reverse stress test illustrated why assessments must capture interactions between capital losses and funding stress, rather than examining them separately. Existing proposals for small banks with limited complexity envisage less frequent assessments where risks permit and greater reliance on stress tests conducted by supervisors. Simpler treatment must remain subject to review, supported by credible crisis management, and cannot depend on size alone. Reform assessments should identify specific shortcomings, explain what protection could be lost and examine the combined effects of changes, including whether risks could migrate to other institutions or sectors. Changes affecting banks’ capacity to absorb losses warrant closer analysis under adverse conditions than removing duplicate information requests. The leverage ratio and output floor provide distinct safeguards against underestimated risks and should be retained. Reviews after implementation should establish whether reforms free resources to address serious weaknesses while preserving the information needed to detect emerging problems and act promptly.
ECB’s Donnery sets out criteria for regulatory modernisation while defending prudential backstops
ECB Supervisory Board member Sharon Donnery backed the Financial Stability Board’s draft modernisation principles in a keynote speech at the IIF banking regulation colloquium. She emphasised simpler supervision focused on material risks, with discretion to intensify scrutiny as conditions change. Reforms should preserve capital backstops and be assessed for their combined effects and results after implementation.