The European Central Bank (ECB) published its annual report on supervisory activities in March. It provides a useful insight into the 2016 priorities and workings of the ECB as the supervisor for the Eurozone.
The document summarizes the supervisory priorities and acknowledges that the key priorities are unlikely to be fully addressed within one year and will remain on the list in future years.
The report confirms that the biggest Banking Union challenge is business model and profitability risk at significant institutions - return on equity was 4.6 percent on average in 2015. One of the keys to addressing this is to proactively address non-performing loans (NPLs). The supervisory pressure to develop a profitable strategy is likely to lead to loan disposals as banks exit less profitable lines and enter core profitable markets. Of course, this raises capital management issues.
The SSM’s three special initiatives of 2015: Options and National Discretions; the Supervisory Review and Evaluation Process (SREP); and Non-Performing Loans remain on the agenda for 2016. Of note, the rules for Options and National Discretions came into force in March 2016.
The report outlines some interesting details on supervisory activities and organizational design:
For those seeking a better understanding of the mechanics of the Single Supervisory Mechanism (SSM), the report (PDF 879 KB) is essential reading. For further information please contact Ciaran Rogers (firstname.lastname@example.org) or Mehdi Bouih (email@example.com).
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.