The European Central Bank has published a working paper that assesses how supervisory actions affected large euro area banks’ commercial real estate risk management, using confidential quarterly supervisory data from 2020 to 2024. The paper finds that on-site inspections were followed by persistent increases in banks’ commercial real estate coverage ratios, while off-site targeted reviews were associated with immediate but short-lived improvements. The paper presents these findings as the authors’ analysis and notes that the views do not necessarily reflect those of the ECB. The analysis covers 81 significant institutions, including 22 banks subject to commercial real estate on-site inspections and 15 subject to targeted reviews, with the remaining 44 banks forming the comparison group. The coverage ratio, defined as provisions relative to non-performing commercial real estate exposures, is used as the main indicator of more conservative provisioning and stronger loss-absorption capacity. In the static estimates, on-site inspections were associated with increases in coverage ratios of roughly 12 to 15 percentage points, while targeted reviews showed small and statistically insignificant average effects. In the dynamic analysis, the effect of on-site inspections began in the quarter of intervention and remained significant across most quarters for at least nine quarters, with effects reaching about 20 percentage points from quarter six onward. Targeted reviews produced increases of about 9 to 12 percentage points in the first two quarters after intervention, but those effects dissipated after that. The paper attributes the difference to the more intrusive nature of on-site inspections, their binding remedial actions, and their larger volume and severity of measures, compared with desk-based targeted reviews that focus more on benchmarking, governance and early risk detection.

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