The European Central Bank (ECB) has published its priorities for this year for supervising significant banks in the Euro area. The ECB’s five high-level supervisory priorities are:

  • business model and profitability risk. Building on previous work around banks business models and on profitability analyses, the ECB will launch a thematic review of banks’ profitability drivers at firm level and across business models;
  • credit risk. Among other things, the ECB will examine the implementation of International Financial Reporting Standard 9 – Financial Instruments. A thematic review will assess the potential impact of IFRS 9 on banks’ provisioning practices and how banks are preparing for its introduction;
  • capital adequacy. The ECB notes that the focal points with regards to capital adequacy are the quality and consistency of banks’ Internal Capital Adequacy Assessment Processes (ICAAP), including banks’ internal stress-testing capacities, and the conduct of supervisory stress tests such as the EU-wide stress test coordinated by the European Banking Authority;
  • risk governance and data quality. Among other things, the ECB will carry out a thematic review of banks’ compliance with the Basel Committee on Banking Supervision’s principles for effective risk data aggregation and risk reporting; and
  • liquidity. The ECB notes that the 2015 Supervisory Review and Evaluation Process revealed that a number of banks do not yet fully meet supervisory expectations regarding the sound management of liquidity risks. Therefore in 2016, the SSM will focus on the reliability of banks’ Internal Liquidity Adequacy Assessment Processes.

View ECB Banking Supervision publishes priorities for 2016, 6 January 2016