Deloitte survey reports enhanced quality of banking supervision across the Eurozone

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Assessing the state of the Banking Union

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20/07/2016 |
  • Deloitte - Martin Flaunet -

    Martin Flaunet, Partner and Banking Leader at Deloitte Luxembourg

The European Single Supervisory Mechanism (SSM) has improved the quality of banking supervision throughout the Eurozone, according to a recent Deloitte survey. All of the 45 directly supervised banks surveyed stated the new approach had enhanced the overall quality of supervision. Nonetheless, much remains to be done by both groups—the banks as well as the European Central Bank (ECB) and National Supervisory Authorities.

“Apart from the remaining challenges, the overall perception of the new supervision process remains positive,” says Martin Flaunet, Deloitte Luxembourg Partner and Banking Leader.

Increased supervisory costs
Many banks still have projects underway to tackle the shortcomings identified following the financial crisis, including the comprehensive assessment exercise conducted by the European Central Bank in 2014. Eurozone banks are still struggling to achieve profitability and return on equity—both key supervisory goals of the SSM—with the aim to increase financial integrity and stability of the banking union. New supervisory initiatives now need to compete with those projects for time and resources. Almost half of the banks reported that their supervisory expenditures had increased by more than 50 percent in order to be able to implement the changes to manage their supervisory relationships and to comply with all the reporting requirements.

Key challenges facing banks
Banks ranked risk data aggregation, data quality, the implementation of the international financial reporting standard IFRS 9, and supervisory assessments of business models as the most challenging aspects of the SSM’s priorities in the short run. The implementation of the new guidelines on the Supervisory Review and Evaluation Process (SREP) remains a key area of concern and uncertainty. The SREP was introduced to ensure that supervised entities have adequate funds to respond to material risks, and have valid risk-management and internal governance structures in place.

As the SREP requires supervisors to perform business model analyses and on-site inspections, one of the banks’ main concerns in the past was that the increased focus on business models might lead to interference by supervisors in strategic decision-making. Around 22 percent of survey respondents confirmed that the SSM had significantly affected strategic decision-making, while an additional 60 percent reported that they noticed an impact without considering it to be significant.

About the survey
The Eurozone Banking Supervision Survey 2016 was conducted by Deloitte beginning of 2016, one year after the SSM came into effect for businesses. Its goal was to monitor and analyze the impact of the SSM on the Eurozone banks in terms of relationships, organization, and technical issues regarding the new supervisory activities and regulations. The participants of this survey were 45 directly supervised banks, equaling over one third of all directly supervised banks by the ECB, covering 16 out of 19 Eurozone countries.

Read more about the survey results on Deloitte Luxembourg’s website: http://www2.deloitte.com/lu/2016-deloitte-banking-survey

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