The supervisory priorities have outlined focus areas for supervision in 2020. The ECB Banking Supervision has detected sources of risk in cooperation with the competent national authorities. The main risk factors identified include economic, political, and debt sustainability challenges in the Euro area, business model sustainability, as well as cybercrime and IT deficiencies. Additional significant risk drivers include execution risk attached to strategies for non-performing loans (NPLs), easing lending standards, repricing in financial markets, misconduct/money laundering/terrorism financing, Brexit, global outlook and geopolitical uncertainties, reaction to regulation and climate-change-related risks.
In order to ensure that banks address these critical challenges effectively, ECB Banking Supervision has reviewed its supervisory priorities and realigned them under the following areas:
- Continuing balance sheet repair: it consists of follow-up on NPL guidance to lower legacy risks, and achieve consistent coverage of the stock and flow of NPLs over the medium-term. It also encompasses follow-up on Targeted Review of Internal Models (TRIM) findings, along with the interaction with banks on the European Banking Authority’s IRB repair programme, and on-site inspections on trading and market risk aspects;
- Strengthening future resilience: ECB Banking Supervision will conduct several supervisory activities, which include the evaluation of credit underwriting criteria, and on-site inspections on real estate exposures and leverage finance. The supervisory action will also include the improvement of banks’ internal capital and liquidity adequacy assessment processes (ICAAPs and ILAAPs) and on-site inspections on ICAAPs, a focus on increasing digitization in conjunction with the evaluation of business models and profitability within Supervisory Review and Evaluation Process (SREP), the assessment and reporting of IT and cyber risks, the execution of the European Banking Authority (EBA) EU-wide stress tests and ECB stress tests to encourage banks to strengthen their own stress testing and risk management capabilities, and the assessment of compliance with governance expectations in specific areas.
- Other priorities: monitoring of the implementation of Brexit plans and their compliance with the supervisor's expectations.
The priorities mentioned above are an essential tool for the harmonised coordination of supervisory actions, throughout the European banking system.