The European Central Bank's supervisory priorities
Fecha: septiembre 2023
Diego Aires, Antonio Mota, Fernando Rojas and Francisco del Olmo
Compared to the recent episodes of financial instability in the US and Switzerland, where several banks suffered structural balance sheet issues forcing their intervention and/or acquisition by other banks, the European banks’ earnings and capital structures look relatively strong. Without question, this is largely thanks to the intense regulatory and supervisory activity undertaken by the European authorities focused on avoiding episodes of stress similar to those observed in other geographies. Nevertheless, recent developments have highlighted the need for banks’ business models to focus on risk-adjusted returns, with high interest rates favouring the maturity transformation business. Elsewhere, the banks will inevitably have to address regulatory changes related to liquidity buffers, as recent events have shown these may potentially mask underlying issues. Lastly, going forward, the focus should be on strengthening the banks’ capital and liquidity self-assessments, as this will help improve dialogue with supervisory authorities, while at the same time demonstrating the viability of their business models, hence underpinning stable performance of business activities and the correct functioning of credit channels.