Buch outlines ECB's focus on bank resilience and supervisory efficiency
Claudia Buch, Chair of the ECB's Supervisory Board, presented the Annual Report on supervisory activities for 2025 to the European Parliament. She highlighted the banking sector's robust short-term indicators but warned of elevated medium-to-long-term risks and outlined efforts to strengthen risk-based supervision.
European banks: Robust, but vigilant
European banks entered a phase of heightened geopolitical uncertainty with robust short-term indicators and strong capitalisation, according to Claudia Buch, Chair of the ECB's Supervisory Board.
The aggregate Common Equity Tier 1 (CET1) ratio for significant institutions stands at around 16%, with non-performing loans remaining stable at approximately 2%.
However, Buch highlighted limited vulnerabilities in commercial real estate and lending to small and medium-sized enterprises.
The ongoing conflict in the Middle East adds uncertainty, potentially impacting credit quality and bank balance sheets later.
The euro area banking sector shows no difficulties complying with the revised Capital Requirements Regulation (CRR III), which transposes Basel III rules into European law and applied since last year.
Fully implementing Basel III remains a policy priority to maintain an international level playing field and strengthen financial stability.
Appropriately capitalised and resilient banks are better positioned to respond to evolving risks, maintain lending, and support households and firms during stress periods.
Adapting supervision to new realities
ECB supervision prioritizes safeguarding bank resilience against heightened geopolitical risk and macroeconomic uncertainty.
Banks must now identify geopolitical risk events that could deplete CET1 capital by at least 300 basis points, detailing preventive measures.
Supervisors are also scrutinizing loan underwriting standards, concerned that intensifying competition, especially from non-banks, could weaken lending terms.
Operational resilience forms a second key priority, addressing challenges from digital payment providers, AI, and increasing cyberattacks.
Buch stressed that sound investments in IT and digitalisation are crucial for competitiveness, with current profitability offering a window for these upgrades.
Continuous vigilance, evolving tools
Buch's statement underscores the ongoing need for robust banking supervision in a volatile environment, despite current strong indicators.
The focus on streamlining and digitalizing processes is a pragmatic response to increasing complexity and resource constraints.
However, the ultimate success hinges on completing the banking union and fostering market integration to truly strengthen the sector's long-term resilience and competitiveness.