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Frank Elderson said the ECB is adapting European banking supervision to a more uncertain and interconnected risk environment, with sharper priorities, simpler processes and faster remediation. He cited shorter processing times and reduced data demands, while saying supervisors must retain strong judgment and act when banks fail to address material weaknesses.
Frank Elderson, vice-chair of the European Central Bank’s Supervisory Board, said the ECB is reshaping European banking supervision around risk prioritisation, simpler processes and timely remediation. Speaking at a Basel Committee conference in Bali on September 30, he argued that supervisors should focus on material risks and act on weaknesses while preserving banks’ safety and soundness.
Elderson described a risk environment shaped by geopolitical fragmentation, rapid technology change, volatile energy and commodity prices, and closer links between banks and non-bank financial institutions. Climate and nature-related risks also remain part of the supervisory picture, he said. In response, European banking supervision is moving away from trying to examine every risk at every bank in equal depth each year.
The ECB’s risk tolerance framework sets out how much residual supervisory risk can be accepted when some areas receive less scrutiny or are deferred. Elderson said this is a deliberate supervisory judgment, not an accidental omission. Lower-priority risks may not receive the same intensive review every year, while supervisors direct more attention to areas they judge material to a bank’s safety.
He also cited operational changes under the ECB’s Next Level Supervision initiative. The ECB has reviewed more than 100 guidance publications, discontinued about 40 and revised others. Processing time for standardised, lower-risk securitisations has fallen from three months to an average of about seven days, according to Elderson. The ECB has also cut stress-testing data points by around 55% and reduced timelines for some capital-related decisions from several months to under six days.
The approach affects both how supervisors allocate their time and what banks can expect when weaknesses are found. Less duplication and fewer data requests could free supervisory capacity for problems in governance, risk management, liquidity, operational resilience or business models. For banks, simpler processes may reduce the work involved in routine approvals and reporting.
Elderson stressed that streamlining is intended to preserve the same level of safety and soundness, rather than loosen safeguards. He said supervisors should address root causes and use a range of measures, including capital requirements, qualitative requirements, business restrictions and periodic penalty payments where appropriate. The practical test will be whether faster processes also lead to durable fixes at banks.
The framework also leaves room for supervisory judgment. A rulebook cannot specify every emerging risk or individual bank’s business model, Elderson said. That discretion makes it important for supervisors to explain their priorities and use their powers consistently, while banks remain responsible for managing risks that rules may not capture in detail.
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Lessons From Banking Stress
Elderson linked the policy to the 2023 banking turmoil, saying banks can comply with formal capital and liquidity requirements while vulnerabilities in governance, risk culture or business models build up. The speech did not identify a new bank-specific finding or announce a regulatory rule change; it set out the ECB’s stated supervisory direction.
He situated the remarks within a wider debate over bank competitiveness and regulation. In his account, resilience and competitiveness can reinforce one another, while reducing prudential standards alone does not guarantee more lending or stronger performance. He also called for continued implementation of Basel III and international coordination, particularly as financial activity and risks cross borders.
“In a more complex world, effective supervision requires clearer, forward-looking prioritisation.”
— Frank Elderson, ECB Supervisory Board vice-chair
How the New Priorities Will Perform
The speech did not give a timetable for measuring the full effect of the risk tolerance framework. Elderson said its impact was beginning to emerge but that full effects will take time. The ECB did not provide outcome data showing whether the shorter processing times or reduced reporting demands have improved supervisory results or banks’ resilience.
It also remains unclear how frequently individual risks will be deferred in practice, how the ECB will assess residual supervisory risk across different banks, and what indicators it will use to show that simplification has not weakened oversight. Those judgments will depend on each bank’s risk profile and the supervisor’s assessment.
ECB Plans Further Rollout
Elderson said the ECB would continue rolling out simplification initiatives through 2026. Supervisors will also continue to use escalation and enforcement measures when banks do not address material findings, with responses calibrated to the seriousness and persistence of an issue and the bank’s cooperation.
The next evidence to watch is whether the ECB reports further process changes alongside clear results on remediation and risk control. Elderson also called for stronger international cooperation on risks involving non-bank finance and cybersecurity, and for full implementation of Basel III. The speech did not set new deadlines for those actions.
Key Questions
What did Frank Elderson announce?
He outlined the ECB’s approach to bank supervision: sharper risk prioritisation, simpler and more efficient processes, and timely remediation of weaknesses.
Does greater supervisory risk tolerance mean weaker bank rules?
Elderson described it as a way to focus supervisory scrutiny on material risks, allowing some lower-priority areas to receive less frequent or less intensive review. He said the aim is to preserve safety and soundness.
What process changes did he cite?
He said the ECB discontinued about 40 of more than 100 reviewed guidance publications, cut stress-testing data points by around 55%, and reduced average processing time for standardised, lower-risk securitisations to about seven days.
What remains uncertain?
The full effect of the new framework is not yet known. Elderson said it will take time to assess, and the speech did not set out a timetable or outcome measures for judging its effects.
Source: primary
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