On 30 October 2018, the European Central Bank (ECB) published a document (the Document) setting out its supervisory priorities for 2019 for the single supervisory mechanism (SSM). The ECB has identified the key drivers of risk in the banking sector are: geopolitical uncertainties; the stock of non-performing loans (NPLs) and potential for a build-up of future NPLs; cybercrime and IT disruptions; potential repricing in financial markets; the low interest rate environment; banks’ reaction to new and existing regulations; euro area economic and fiscal conditions; cases of misconduct; developments in real estate markets; structural business challenges; and non-bank competition and climate-related risks.

To manage the identified risks, the ECB sets out three high-level priority areas for 2019:

  • credit risk: the ECB will issue follow up NPL guidance to that already issued; and will perform an assessment of the quality of banks’ underwriting criteria with a focus on new lending;
  • risk management: ECB will continue its reviews into internal models; improve banks’ internal capital and liquidity adequacy assessment processes and support the further integration into supervisory review and evaluation process continue investigating IT and cyber risks, perform an assessment of banks’ resilience against liquidity shocks; and
  • activities comprising multiple risk dimensions: the ECB will focus on the monitoring and implementation of banks’ Brexit plans; and will continue its supervisory dialogue with institutions for the implementation of the envisaged Fundamental Review of the Trading Book rules.