In an interview with banko.ro, Sharon Donnery, a member of the European Central Bank’s Supervisory Board, outlined how ECB Banking Supervision is streamlining its work while maintaining prudential safeguards. The next-level supervision initiative is removing duplication, improving the use of technology and data, and directing scrutiny toward each bank’s most material financial and non-financial risks. More than 100 supervisory publications have been reviewed, with outdated documents discontinued and key guidance simplified, but capital expectations will remain anchored in banks’ underlying risks. The reformed Supervisory Review and Evaluation Process will apply more targeted scrutiny rather than examining every risk category with the same intensity each year. Pillar 2 requirements will continue to cover bank-specific risks not sufficiently addressed by Pillar 1, without a general loosening or tightening, while Pillar 2 guidance will remain linked to stress-test results. Donnery also reiterated that banks must improve forward-looking assessments of geopolitical risk, account for indirect exposures through customers and markets, and incorporate disruptions involving non-bank financial institutions into stress testing. Operational resilience and data governance remain areas for stronger supervisory follow-up. Banks with material cloud concentration risks are expected to map critical services, maintain contingency and exit plans, and demonstrate continuity during severe provider outages or cyber incidents. Management boards must also treat risk data quality as a core governance issue, with supervisors expecting tangible remediation of longstanding deficiencies rather than repeatedly extended plans. Donnery linked this risk based approach to the ECB’s wider call for a more integrated banking union, supported by harmonised rules, common deposit insurance and a stronger crisis management framework.
European Central Bank Banking Supervision’s Sharon Donnery outlines streamlined risk based supervision without weaker capital standards
European Central Bank Supervisory Board member Sharon Donnery said more efficient, risk based supervision will not dilute capital or other prudential standards. The SREP reform will target each bank’s material risks while keeping Pillar 2 requirements tied to risks not covered by Pillar 1. Banks also face closer scrutiny of geopolitical exposures, cloud concentration, operational resilience and persistent risk data weaknesses.