ECB plans to clamp down on banks ignoring its demands for fixes

THE European Central Bank (ECB) is set to crack down on lenders that are slow to deal with fixes the supervisor demands of them, after growing frustrated with a perceived lack of responsiveness.

The ECB has issued more than 5,000 supervisory measures a year on average since it started overseeing the euro region’s top banks in late 2014. But banks have at times been slow to respond to the watchdog’s demands, creating a backlog that the ECB is now trying to reduce in an effort to make its oversight more effective.

The central bank, which does not publish data on how quickly banks process their action points, has grown frustrated with the speed of action and is planning to push banks harder next year to tackle the backlog, sources briefed on the matter said. They asked for anonymity in discussing internal deliberations.

A spokesperson for the ECB declined to comment.

The move is a test of whether Claudia Buch, the ECB’s top banking watchdog, can see through her pledge of making supervision more effective. Bankers were already bristling over regulators’ efforts to become more “intrusive”, especially as US competitors seek a laxer approach under the next Trump administration.

As part of the ECB’s crackdown, banks will be pressed to have a plan for reducing their stock of findings and measures, and to demonstrate that they have capacity to carry out those plans, one source said. Lenders that repeatedly miss deadlines will be in particular focus, and those not progressing could face fines, the source added.

The ECB’s measures are graded by severity and can touch on a broad range of issues, from managing market risk to governance. They can come from the onsite supervision team conducting special investigations, such as the ECB’s probe this year into leveraged finance. Ordinary regulatory interactions, such as the ECB’s Supervisory Review and Evaluation Process, or SREP, can also result in such orders.

Last year’s independent review of the SREP process – the so-called ‘wise persons report’ – cited issues with the “follow-through process” for some orders, because “the late or inadequate remediation of qualitative measures does not trigger any automatic escalation or reassessment”.

Several bank executives, who asked for anonymity, said their institutions had been struggling with the volume of demands, and that their stock of outstanding findings and measures had been swelling. A senior manager at one of the biggest US banks said the ECB’s demands were so great that they outstripped the combined requests from all the firm’s other regulators.

Some of the backlog of findings and measures may have become outdated, said another source, for instance when a subsidiary that had been singled out by the supervisor is being sold, or when a bank has addressed the concerns at the group level but some subsidiaries still show them as ‘outstanding’.

Outlining its priorities for 2025 to 2027, the ECB in December flagged a “progressive shift in focus from risk identification to risk remediation” next year.

“Accordingly, banks with unresolved material shortcomings will be asked to step up their efforts to fully comply with supervisory expectations and implement sound remedial action plans in a timely manner,” the ECB said. BLOOMBERG