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Frank Elderson said European banking supervision is focusing more sharply on material risks, simplifying processes and pursuing timely remediation. He cited reductions in guidance publications, securitisation processing times and stress-test data points; the full effects of the approach will take time to assess.
Elderson described the ECB’s approach as three mutually reinforcing pillars: risk prioritisation, supervisory efficiency and timely remediation. He said supervisors should focus on material risks wherever they arise, including capital and liquidity, governance, operational resilience, climate and nature-related exposures, and geopolitical risks. He also cautioned that meeting formal capital and liquidity requirements alone may not reveal weaknesses in a bank’s governance, risk culture or business model.
Under the ECB’s risk tolerance framework, supervisors can consciously review some lower-priority areas less intensively or defer them. Elderson said this is an institutional judgment about residual supervisory risk, rather than a passive omission caused by limited resources. He argued that prioritising substance over form calls for stronger supervisory judgment and action when banks do not manage risks adequately.
As part of the ECB’s Next Level Supervision initiative, Elderson said the ECB had reviewed more than 100 supervisory guidance publications. Around 40 were discontinued, with others revised or undergoing further review. For standardised, less risky securitisations, he said average processing time had fallen from three months to about seven days. He also reported a reduction of about 55% in stress-testing data points and shorter turnaround times for fit-and-proper assessments, supported by digitalisation and artificial intelligence.
How Risk Priorities Are Shifting
The changes affect how supervisors allocate scrutiny across banks and risk areas. A framework that permits less intensive reviews of selected lower-priority topics could free up capacity for more material risks, while placing greater weight on supervisors’ judgment about what deserves attention and when to intervene.
Elderson said simplification is intended to make supervision easier to navigate for banks and supervisors while maintaining safety and soundness. The figures he cited indicate changes to specific processes, but do not by themselves establish the overall impact on banks’ resilience or the quality of supervision.
He also cast the shift as a shared responsibility. Banks, he said, should apply the law based on materiality and avoid repeatedly seeking guidance solely to pursue greater legal certainty. That expectation could influence how banks engage with supervisors, although the speech did not set out new binding requirements.
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Lessons From Banking Turmoil
Elderson linked the supervisory approach to lessons from the 2023 banking turmoil. He said that episode showed how banks can meet formal capital and liquidity requirements while weaknesses in governance, risk culture or business models build up. His remarks frame risk prioritisation as a response to vulnerabilities that may not be captured by checking minimum requirements alone.
The speech took place at the Basel Committee on Banking Supervision’s international conference of banking supervisors, during a panel titled “Navigating the New Financial Landscape.” Elderson described pressures including geopolitical fragmentation, technological change, volatile energy and commodity prices, inflation, demographic shifts, stronger links with non-bank financial institutions, and climate and nature-related risks.
““In a more complex world, effective supervision requires clearer, forward-looking prioritisation.””
— Frank Elderson, ECB Supervisory Board Vice-Chair
Effects Still Need Assessment
Elderson said the impact of the risk tolerance approach is beginning to emerge but that its full effects will take time to assess. His speech did not quantify how supervisory resources have been redistributed, identify which specific bank risks have received less scrutiny, or provide evidence linking the process changes to outcomes in bank resilience.
The remarks also do not specify a timetable for the remaining guidance reviews or further changes under Next Level Supervision. The 55% reduction in stress-testing data points and shorter assessment times were reported by Elderson; the speech did not give the underlying periods or comparison methodology for those figures.
ECB Reforms Continue
The ECB’s review of supervisory guidance is continuing, with some publications still under more in-depth review, according to Elderson. The institution is also expected to continue implementing its Next Level Supervision initiative and assessing how its risk tolerance framework works in practice. No further milestone or completion date was given in the speech.
For banks and supervisors, the next test will be whether streamlined procedures and more selective reviews leave capacity for timely action on material weaknesses while maintaining safety and soundness. Elderson said the cultural shift depends on banks as well as supervisors, but did not announce specific new obligations for either.
Key Questions
What did Frank Elderson announce?
He described the ECB’s approach to European banking supervision: prioritising material risks, simplifying processes and pursuing timely remediation. The speech set out the approach and cited process changes; it did not announce a new set of binding rules.
What is the ECB’s risk tolerance framework?
Elderson described it as a framework for deciding how much residual supervisory risk the ECB can accept when some areas are reviewed less intensively or deferred. He said those choices are deliberate judgments within an institutional framework.
What process changes did Elderson report?
He said around 40 of more than 100 reviewed supervisory guidance publications had been discontinued. Average processing time for standardised, less risky securitisations had fallen from three months to about seven days, and stress-testing data points had been reduced by around 55%.
Does simplification mean weaker supervision?
Elderson said the aim is to free up capacity to assess material risks while preserving safety and soundness. The speech did not provide outcome data showing the full effect of the changes on banks’ resilience.
What remains uncertain about the changes?
The full effects of the risk tolerance framework are still emerging. Elderson did not quantify how supervisory attention has shifted across individual risks or provide a timetable for completing the remaining guidance reviews.
Source: primary
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