ECB asks banks to address credit risk and improve efficiency
The European Central Bank (ECB) published the outcome of its 2020 Supervisory Review and Evaluation Process (SREP) and announced its supervisory priorities for 2021.
This year’s SREP results reflect an early decision by the ECB to take a pragmatic approach towards conducting its annual core activities on account of the coronavirus (COVID-19) pandemic.
The ECB’s pragmatic approach to the SREP focused on banks’ ability to address the challenges and risks to capital and liquidity arising from the ongoing pandemic. The ECB decided that the Pillar 2 requirements (P2R) and Pillar 2 guidance (P2G) would be kept stable, and that the SREP scores would not be updated, unless changes were justified by exceptional circumstances affecting an individual bank. Supervisory concerns were addressed mainly through qualitative recommendations rather than supervisory measures
In summary:
- Overall SREP requirements and guidance stable as a result of pragmatic SREP approach.
- Banks show resilience, but vulnerabilities remain in several areas, particularly credit risk.
- Supervisory priorities for 2021 are: credit risk management; capital strength; business model sustainability; and governance.
Read or download here:
ECB’s Communication, 28th January 2021