The European Central Bank (ECB) has published the introductory statements given by Daniele Nouy (Chair of the Supervisory Board of the ECB) and Sabine Lautenschlager (Member of the Executive Board of the ECB and Vice-Chair of the Supervisory Board of the ECB) at the annual press conference on ECB Banking Supervision.

In relation to Daniele Nouy’s statement key points include:

  • the ECB expects banks to invest in strong risk management. Banks need to cut costs, but risk management is definitely not the place to do so; and
  • non-performing loans (NPLs) are a major issue for the ECB. Last year the ECB published guidance for banks on how to reduce their NPLs. The ECB is now working on an addendum to this guidance that will specify how and when it expects banks to provision for new NPLs. This addendum will be published in March.

Sabine Lautenschlager’s statement covers Brexit, the key points include:

  • banks must continue to prepare for any outcome in the Brexit negotiations, including a hard Brexit;
  • any bank that wishes to relocate from the UK to the euro area should have submitted its license application by now. If it has not, it should do so by the end of the second quarter of 2018 at the latest;
  • the ECB will closely monitor the Brexit negotiations. Depending on how the discussions on a transition period go, the ECB may discuss with banks whether they might be granted more time to implement their relocation plans. However, the ECB will only do this with the banks that have already presented high-quality and credible plans for their steady state situation. And such discussion will only cover those aspects that are within the scope of the supervisory authorities;
  • euro area banks should get ready for Brexit. They too should submit their licence applications in accordance with the requirements of the PRA. The ECB welcomes the fact that the PRA has provided more clarity on its supervisory approach;
  • when preparing for Brexit, banks bear in mind something the ECB keeps repeating: it will not tolerate any empty shells. Banks must be “real” banks if they want to operate in the euro area. European banking supervision will keep a close eye on how incoming banks organise their business in the euro area. What counts for the ECB, as a supervisor, is that banks retain full control of their balance sheet risks within the euro area. Banks need to establish sufficient local capabilities in areas such as pricing, trading, hedging and risk management.

View Introductory statements at the annual press conference on ECB Banking Supervision, 7 February 2018