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Frank Elderson said European banking supervision is sharpening its focus on material risks while simplifying processes and pressing for timely remediation. He cited shorter securitisation approval times and fewer stress-test data points, while warning that the full impact of the changes will take time to emerge.
European banking supervision is placing greater weight on material risks, simpler supervisory processes and timely remediation, ECB Supervisory Board Vice-Chair Frank Elderson said on September 30 at an international conference in Bali. He said the approach is intended to help supervisors address a more uncertain and interconnected risk environment without trying to examine every risk at every bank with equal intensity.
Elderson described the ECB’s approach as resting on three pillars: sharper risk prioritisation, more efficient supervision and timely remediation. He said the risk landscape is shaped by geopolitical fragmentation, technological change, volatile energy and commodity prices, inflation, demographic shifts, connections between banks and non-bank financial institutions, and climate- and nature-related risks.
He said the ECB’s risk tolerance framework makes explicit how much residual supervisory risk may be accepted when some areas receive less intensive review or are deferred. Elderson characterised those choices as conscious supervisory judgments, rather than omissions caused only by limited resources. He said lower-priority areas at individual banks would not necessarily receive the same level of scrutiny every year.
Under the ECB’s Next Level Supervision initiative, Elderson said, supervisors have reviewed processes to reduce duplication, move faster and request only necessary information. The ECB has reviewed more than 100 guidance publications; around 40 were discontinued, while others were revised or remain under review. He also said average processing time for standardised, lower-risk securitisations fell from three months to about seven days, and stress-testing data points were reduced by around 55%.
How Risk Priorities Shape Oversight
The shift matters because Elderson argued that meeting formal capital and liquidity requirements does not by itself guarantee a bank is safe. Weak governance, risk culture or business models can build up even when a bank meets minimum requirements, he said, pointing to the 2023 banking turmoil as a reminder of that vulnerability.
More selective reviews could free supervisory capacity for risks with greater potential impact, while process changes could reduce delays and repeated requests for banks. But the approach also puts more weight on supervisory judgment: Elderson said a simpler, less prescriptive framework cannot spell out every emerging risk or individual business model. The speech sets out the ECB’s rationale and reported process changes; it does not establish that the reforms have already improved bank resilience.
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From Rule Checks to Material Risks
Elderson spoke at the Basel Committee on Banking Supervision’s international conference of banking supervisors, during a panel titled “Navigating the New Financial Landscape”. His contribution focused on how supervisors can remain effective as risks become more uncertain, connected and volatile.
He said the 2023 banking turmoil exposed the limits of relying on formal compliance alone. In response, the ECB’s stated supervisory approach focuses on material risks across capital, liquidity, governance, operational resilience and structural drivers such as climate and geopolitical risks. Elderson also referred to a recent European Commission report on banking competitiveness, which he said highlighted the shared responsibility for a more agile and less risk-averse environment.
“In a more complex world, effective supervision requires clearer, forward-looking prioritisation.”
— Frank Elderson, ECB Vice-Chair of the Supervisory Board and Executive Board member
Reform Impact Still Developing
Elderson said the impact of the risk-tolerance approach is beginning to emerge, but its full effects will take time. His speech did not specify how the ECB will measure whether risk prioritisation improves supervisory outcomes, or provide a timetable for those assessments.
The remarks also do not detail how often lower-priority areas will be reviewed, which risks will be deferred at particular banks, or what safeguards will apply in each case. The cited reductions in processing time and data points are ECB-reported operational measures; the speech does not quantify their effects on banks’ costs or resilience.
ECB Reforms and Follow-Through
The ECB’s process reviews are continuing: Elderson said several guidance publications remain under more in-depth review. The speech did not announce a new deadline or a further milestone for the initiative.
He said the cultural shift depends on banks and other stakeholders as well as supervisors. Banks, in his account, should take greater responsibility for applying the law based on materiality rather than repeatedly seeking guidance for greater legal certainty. How that expectation will be applied in practice remains to be seen.
Key Questions
What did Frank Elderson announce?
He outlined the ECB’s approach to banking supervision: sharper risk prioritisation, simpler processes and timely remediation. The speech described an ongoing policy direction rather than a new rule announced on September 30.
What is the ECB’s risk tolerance framework?
Elderson described it as a framework clarifying how much residual supervisory risk may be accepted when some areas receive less intensive review or are deferred. He said those decisions are deliberate judgments about priorities.
What process changes did he cite?
Elderson said the ECB reviewed more than 100 supervisory guidance publications, discontinued around 40 and reduced average processing time for standardised, lower-risk securitisations from three months to about seven days. He also cited a reduction of around 55% in stress-testing data points.
Does the approach mean banks will face weaker oversight?
Elderson said simplification is intended to preserve the same level of safety and soundness while focusing scrutiny on material risks. The speech did not provide independent evidence of the reforms’ effects on bank resilience, and he said the full impact would take time to emerge.
Source: primary
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