European Central Bank Banking Supervision outlines how it balances Single Rulebook harmonisation with proportionality and bank diversity

In a Eurofi magazine contribution, Patrick Montagner, a Member of the Supervisory Board of the European Central Bank (ECB), set out how ECB Banking Supervision seeks to combine a harmonised supervisory framework under the Single Rulebook with proportionate application that recognises differences in banks’ size, business model and ownership structure. The article argues that consistent standards help limit panic and contagion, citing the 2023 regional banking crisis in the United States as an example of how differentiated, size-based frameworks can be less demanding and more fragile. It also warns that size-based thresholds can create cliff effects that constrain growth or encourage regulatory arbitrage. Montagner links proportionality to the Capital Requirements Directive and notes that an ECB Governing Council report to the European Commission proposed improvements for the framework for small and non-complex institutions, stressing that size alone does not determine risk. He describes the euro area’s practical split between significant institutions (SIs) and less significant institutions (LSIs), with the ECB directly supervising 112 SIs, and national competent authorities supervising LSIs, within a landscape of around 3,000 credit institutions, including 823 institutions consolidated under the SIs; peer groups or “clusters” are used for analysis without forcing standardisation. Across all banks, the ECB expectation is for continuous risk assessment and robust governance and internal controls. The contribution also refers to the ECB’s “Streamlining supervision, safeguarding resilience” work to prioritise supervisory interventions for the 112 SIs, and points to the investment needed to upgrade information systems, including for efficiency, cybersecurity and digitalised customer services, as a potential driver of change in the European banking landscape.