The European Central Bank (ECB) has published a speech by Sabine Lautenschlager, member of the ECB’s Executive Board and Vice-Chair of the ECB’s Supervisory Board. Points of interest in the speech include:

  • the viability of business models is currently one of the ECB’s main areas of attention. The ECB is not only scrutinising business models and profitability drivers, but it’s also taking a close look at risk management;
  • effective risk management rests on two pillars: sound governance structures and high-quality data. In terms of internal governance, the ECB recently published the results of a thematic review concluding that many euro area banks need to improve the way they conduct business and manage their risks in order to achieve international best practices. In terms of high quality data, the ECB will monitor whether banks are applying the Basel Committee on Banking Supervision’s Principles for effective risk data aggregation and risk reporting;
  • another important issue in terms of risk management is the internal models that banks use to calculate their risk-weighted assets. For the next three years the ECB will conduct a targeted review of these internal models and restrict unjustified variability in the calculation of risk-weighted assets; and
  • in addition to business models and risk management the ECB is also focussing on credit risk particularly the issue of non-performing loans.

View ECB speech on European banking sector and ECB priorities, 15 November 2016