In his keynote at the ECB Forum on Banking Supervision 2025, Frank Elderson, ECB Executive Board Member and Supervisory Board Vice-Chair, emphasized that resilient banks are fundamental to Europe’s economic competitiveness. He highlighted that strong banks not only withstand shocks but also support the real economy continuously, contributing directly to innovation, investment, and financial stability.
Strong Banks Form the Backbone of the Economy
Elderson outlined the significant improvements in euro area banks over the past decade:
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Capital strength: Common Equity Tier 1 (CET1) ratio now 16%, up from 12.7%.
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Asset quality: Non-performing loans reduced to 1.9%.
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Profitability: Return on equity at 10.1%, with valuations above book value.
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Operational and risk management resilience: Improved governance and ability to manage shocks.
This broad-based resilience allowed banks to maintain stability during crises such as the COVID-19 pandemic, the energy shock, geopolitical tensions, and inflation surges. Well-capitalized banks continued lending to businesses and households, demonstrating the double benefit of safety and ongoing support to the economy.
Simplifying Supervision Without Compromising Safety
Elderson acknowledged concerns about excessive complexity in Europe’s regulatory and supervisory framework, which can hinder bank competitiveness. The ECB has undertaken initiatives to simplify processes while preserving resilience:
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Supervisory Review and Evaluation Process (SREP) reform: Focusing on key risks, reducing measures, and issuing faster decisions.
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Next-level supervision project: Streamlining decision-making, stress testing, capital decisions, and reporting.
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Faster approvals for simple securitisations and integrated reporting frameworks to reduce cost and duplication.
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Proportionality measures for small and non-complex institutions, easing reporting and inspections.
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Enhanced predictability in supervisory outcomes and capital requirements.
These efforts demonstrate that resilience and simplification can complement each other.
Competitiveness Depends on Structural and Macroeconomic Factors
Beyond regulation, Elderson stressed that banks’ competitiveness is shaped by broader factors:
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Fragmented Single Market limits scale and efficiency.
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Lower IT investment and smaller home markets compared to US banks reduce profitability.
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Subdued EU GDP growth and slower adoption of digital technologies limit productivity gains.
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Operating efficiency, while improved, still leaves room for cost optimization.
Addressing these challenges requires integration and strategic growth measures, including pan-European consolidation, completion of the banking union, and development of the savings and investments union.
Boosting Growth and Financial Integration
Elderson outlined avenues to strengthen competitiveness:
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Enable economies of scale through consolidation of the fragmented banking sector.
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Complete the banking union, including a European deposit insurance scheme, to reduce barriers.
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Expand capital markets and risk-sharing instruments to support lending and integration.
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Address real economy productivity gaps by supporting digital transformation and access to risk capital.
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Promote a time-limited roadmap to complete the Single Market, including interim measures for areas where full harmonization is currently infeasible.
Conclusion: Resilient Banks as Pillars of Prosperity
Elderson concluded that Europe stands at a crucial crossroads. Resilient banks are essential for maintaining financial stability, supporting the economy, and fostering competitiveness. Supervisors’ primary task remains ensuring that banks continue to fulfill this role. He stressed that without financial stability, growth and innovation falter; with it, Europe can unleash its full potential for progress, investment, and prosperity.
