The Court of Auditors complains that the ECB has set low standards for banks with high risks.
(Photo: IMAGO/Political Moments)
Frankfurt The European Court of Auditors criticizes the work of the ECB Banking Supervision in monitoring the credit risks of financial institutions. ECB supervisors need to do more to ensure EU banks adequately manage their credit risks, the European Court of Auditors said in a report published on Friday.
Despite increased efforts to monitor credit risks and problem loans, the supervisory authorities have not made any correspondingly stricter requirements for banks with greater risks. In some cases, supervisory measures were not sufficiently tightened even when individual institutions showed persistent deficiencies in the handling of their credit risks. Overall, however, the control of credit risks by the ECB supervisors is of good quality.
“The ECB needs to do more to ensure that credit risk is properly managed and covered by banks,” Auditor General Mihails Kozlovs told the report. Supervisors also need to use the tools available to them more efficiently. In its report, the EU Court of Auditors focused on the 2021 bank audit (SREP) and took a close look at supervisory data from ten institutions with a particularly high proportion of non-performing loans.
The Court of Auditors complained that the inspectors had not demanded correspondingly tougher capital requirements from banks with higher risks. From the point of view of the Court of Auditors, supervision has acted too laxly at this point. The auditors explained that they gave the institutes with the greatest risks targets that were at the lower end of the range.
In addition, they criticized the lack of staffing in the ECB Banking Supervision – also in the joint monitoring teams with the national supervisory authorities. In addition, the bank examination takes too long. Among other things, the Court of Auditors recommended streamlining these and making decisions within ten months.
Also, where necessary, supervisors should use their full range of powers when a bank has persistent weaknesses in risk control. The ECB addressed several recommendations in its response to the report. However, she rejected, as suggested by the Court of Auditors, that the ECB supervisor should decide on its own staffing independently of the monetary policy arm of the central bank.
The ECB has been responsible for controlling the big banks in the euro zone since autumn 2014, while the smaller banks are monitored by the national supervisors of the euro countries. The ECB currently controls 110 institutions, including Deutsche Bank and Commerzbank in Germany.
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