The European Central Bank has published Working Paper No 3115 examining how concerns identified in the Single Supervisory Mechanism’s (SSM) fit and proper assessments of management body appointees relate to subsequent bank performance over 2014–2023. Using confidential supervisory data, the authors find that appointments where supervisors raised suitability concerns are followed by lower profitability, with the negative relationship concentrated in cases where the assessment led to ancillary measures for severe concerns. The analysis covers 15,537 assessed appointees at 756 banks, of which 3,777 (24%) triggered at least one concern. Estimated effects show a reduction in quarterly return on assets of around 1–3 basis points emerging from roughly three quarters after appointment, and supervisory concerns tied to conflicts of interest and lack of experience appear to be key drivers. When distinguishing severity, the negative profitability effect is mainly associated with appointees receiving ancillary measures, while the effect for non-severe concerns becomes weak once severe cases are controlled for. By ancillary measure type, non-binding recommendations are associated with negative profitability effects, whereas legally binding obligations and conditions show no significant negative impact, which the paper interprets as consistent with swifter remediation when supervisors act more forcefully. The paper also reports that appointees flagged with concerns tend to be associated with lower risk-weighted asset density, yet profitability still declines. On diversity, female appointees (27% of the sample) are associated with higher profitability in general, while the relationship between supervisory concerns and performance does not differ significantly by gender. The authors note that the ECB moved in 2023 to use legally binding ancillary measures whenever possible under EU and national law, and describe a revised ancillary measures framework applied from January 2023 that aims to focus on legally binding provisions with deadlines and reduce the overall number of ancillary measures.
European Central Bank 2025-09-18
European Central Bank working paper links SSM fit and proper suitability concerns to lower bank return on assets and finds positive effect from female appointees
The European Central Bank's Working Paper No 3115 examines the impact of suitability concerns in the Single Supervisory Mechanism's assessments on bank performance from 2014 to 2023. It finds that appointees with concerns, especially those leading to ancillary measures, correlate with reduced profitability, notably in conflicts of interest and lack of experience. The paper highlights that female appointees generally enhance profitability and notes the ECB's 2023 shift to legally binding ancillary measures for better supervisory outcomes.