Sabine Lautenschläger answers some questions and clear up misunderstandings – regarding, for example, which tasks European banking supervision (SSM) does perform and which doesn't in supervising small and medium-sized institutions.
Speech by Sabine Lautenschläger, Member of the Executive Board of the ECB and Vice-Chair of the ECB’s Supervisory Board, at the Banking Evening of the Deutsche Bundesbank Regional Office in Baden-Württemberg, Stuttgart
Sabine Lautenschläger began her speech with the conclusion that the term "less significant" institutions is not justified for the group of small and medium-sized banks.
In view of the importance and particularities of this banking sector, she believes indirect European banking supervision to be necessary and appropriate. She also believes that the division of roles that has been in place since November 2014 is clear and unambiguous.
Small and medium-sized institutions basically fulfil the ideal function of the financial system: they finance the real economy. However, this traditional business model is being challenged - at the moment also by sluggish economic growth, weak investment and the prolonged period of low interest rates.
In some countries, many banks have also for a long time been plagued by relentless competition for too few customers for a large number of banks. The German institutions, in particular, indeed have considerable reserves, their customers are generally solvent and liquid, and the ratio of non-performing loans is accordingly low. Therefore, as a supervisor, she is not immediately concerned.
Nonetheless, even these institutions should not try to just hold their breath until they surface from the low interest rate phase. They could rapidly run out of air.
The small and medium-sized institutions will not be able to avoid assessing (in detail) the efficiency of their business model - and better sooner than later. Small and medium-sized institutions are subject to national supervision. Nonetheless, European supervision still plays an important part, but indirectly through cooperation with the national authorities.
These institutions benefit directly from European supervision, however; trust in the banking sector is increasing, the information base for supervision is becoming wider, the likelihood of crises is decreasing and competition is becoming fairer.
After one-and-a-half years of European supervision, much has changed for small and medium-sized institutions too. Reporting requirements are higher, the SREP is being harmonised and the supervisory treatment of institutional protection schemes is being standardised. The ECB and the national supervisors are working together on implementing these changes. The objective is to exercise the best possible supervision, which follows the principle of proportionality, takes appropriate account of national particularities and reflects the particular importance of this banking sector for the stability of national financial markets.
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