In his keynote speech at the ECB Forum on Banking Supervision, Executive Board Member and Supervisory Board Vice-Chair Frank Elderson highlighted the crucial role resilient banks play in supporting Europe’s economic competitiveness. He stressed that strong capital, sound governance, operational resilience and effective risk management form the foundation for a thriving real economy—especially during periods marked by geopolitical tensions, technological disruption and economic uncertainty.
Banks Are Stronger Than a Decade Ago
Elderson underscored the significant progress achieved since European banking supervision was established in 2014. Euro area banks now exhibit:
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Higher capitalisation: CET1 ratios of 16%, up from 12.7% ten years ago.
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Improved asset quality: Non-performing loans reduced to 1.9%.
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Stronger profitability: Return on equity now above 10%.
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Better valuations: Price-to-book ratios surpassing 1.
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Enhanced governance, risk management and operational resilience.
This broad-based resilience enabled banks to remain stable during the pandemic, energy shock and inflation surge—continuing to provide credit even in turbulent times.
Simplification to Reduce Costs and Improve Competitiveness
While resilience remains vital, Elderson acknowledged concerns about undue complexity in the regulatory and supervisory framework. He emphasised that simplification should not compromise safety but can reduce unnecessary burdens.
Key initiatives include:
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Reforming the Supervisory Review and Evaluation Process (SREP): More risk-based, fewer measures, quicker decisions.
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Introducing faster, streamlined supervisory processes: e.g. rapid fit-and-proper assessments and a 10-day fast track for simple securitisations.
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Reducing reporting burdens through an integrated reporting framework.
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Applying stronger proportionality for small and non-complex institutions.
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Clarifying capital requirements to improve predictability and transparency.
The ECB’s High-Level Task Force on Simplification will issue further proposals by year-end.
Competitiveness Depends on Broader Structural and Economic Factors
Elderson stressed that regulatory simplification alone cannot close the competitiveness gap between European and US banks. Key challenges include:
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Fragmentation of the EU Single Market and an incomplete banking union.
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Europe’s slower adoption of digital technologies, which weighs on productivity.
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Lower economies of scale compared to US banks operating in a unified market.
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Weaker real GDP growth in the EU over the past decade.
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Higher costs and lower efficiency in some parts of the European banking sector.
He highlighted the need for deeper financial integration—including completing the banking union and advancing the savings and investments union—to provide firms with better access to risk capital and allow banks to scale up.
A Call for Collective Action
Elderson concluded that Europe’s future prosperity hinges on strengthening competitiveness and preserving financial stability. Resilient, innovative banks are indispensable to this effort.
Supervisors, he said, must continue ensuring the stability of the financial system—because without it, growth and innovation falter, but with it, “there is no ceiling to the progress and prosperity we can unleash.”
