In a keynote speech at the Morgan Stanley European Financials Conference, European Central Bank Executive Board member and ECB Supervisory Board Vice-Chair Frank Elderson argued that the push for bank competitiveness should not be used to justify weakening regulation and supervision. He supported removing undue complexity while maintaining resilience, and pointed to EU-level harmonisation and further integration as the more effective route to simplification than cutting requirements. He highlighted the strengthened position of euro area significant institutions, with an aggregate Common Equity Tier 1 ratio of 15.7% and a leverage ratio of 5.8% in the third quarter of 2024, alongside liquidity ratios above requirements (liquidity coverage ratio 158.5% and net stable funding ratio 126.9%) and return on equity of 10.2%. While noting the non-performing loan ratio is close to historical lows at 2.3%, he flagged rising corporate insolvencies, early signs of weakening asset quality in commercial real estate and small and medium-sized enterprise exposures, and provisions that do not sufficiently reflect downside risks, pointing to persistent shortcomings in International Financial Reporting Standard 9 provisioning frameworks; credit risk management is therefore a key supervisory priority for 2025-27, including work on vulnerable sectors such as the automotive value chain. On operating efficiency and investment capacity, he reiterated that supervisors see benefits in consolidation, including cross-border mergers, and assess transactions only against prudential criteria for safe and sound outcomes. On operational resilience, he noted that significant cyber incidents reported to the ECB more than doubled between 2022 and 2024 and that attacks increasingly target third-party providers, arguing banks should reassess outsourcing-related risk management and invest in IT and cyber resilience, supported by the Digital Operational Resilience Act, which became applicable in the EU earlier in 2025. Elderson also pointed to supervisory efforts to simplify processes without lowering safeguards, including a leaner and more risk-based Supervisory Review and Evaluation Process, a fast-track approval process for standardised securitisations, and increased use of supervisory technology such as machine-reading and pre-screening fit and proper applications since March 2023. He indicated that fourth quarter 2024 supervisory banking statistics were due for release on 20 March 2025.
European Central Bank 2025-03-19
European Central Bank’s Elderson warns against watering down bank regulation and backs EU harmonisation to simplify rules
In a keynote speech, ECB Executive Board member Frank Elderson emphasized that enhancing bank competitiveness should not compromise regulation and supervision. He noted the robust position of euro area significant institutions with strong capital and liquidity ratios but flagged concerns over rising corporate insolvencies and asset quality. Elderson advocated for EU-level harmonisation, operational resilience, and supervisory process simplification, stressing the importance of credit risk management and cyber resilience.