110 major banks in the EU are currently subject to supervision by the European Central Bank. The European Court of Auditors is critical of this.
Luxembourg - The European Central Bank (ECB) is not yet doing enough to monitor banks' credit risks, according to the European Court of Auditors. The Court of Auditors came to the conclusion "that the ECB has stepped up its efforts to monitor credit risks and in particular non-performing loans," according to a report published on Friday by the supervisory body in Luxembourg. However, the ECB needs to strengthen its supervision to ensure that banks in the European Union manage their credit risk appropriately. This is especially true with regard to borrowers who do not repay their loans. In April, experts had already criticized the ECB's banking supervision.
This point is crucial, as poor risk management can jeopardize the existence of banks and that of the entire financial system, the experts write. The ECB has kept a better eye on credit risk and non-performing loans of the institutions. However, it does not make efficient use of its tools and supervisory powers to ensure that the identified risks are fully covered by additional capital.
Also, supervisory measures had not been expanded strongly enough when there were persistent credit risk management problems at banks. The ECB accepted the recommendations, but also stressed in a reaction to the report that it wanted to give banks more time to process non-performing loans.
ECB controls 110 banks
The ECB, based in Frankfurt, is responsible for the direct supervision of currently 110 systemically important banks - so-called significant banks - from 21 EU countries, in close cooperation with the national supervisory authorities. This system was established in 2014 and is referred to as the Single Supervisory Mechanism. These banks in 20 EU countries that use the euro and in Bulgaria account for more than 80 percent of banking assets in the European Banking Union.
Each year, the ECB assesses various risks at these banks, such as credit risk, poor lending standards or risks related to corporate governance, business model and liquidity. In addition, the extent to which the financial institutions have risks under control is assessed. Once a problem has been identified, the ECB may impose additional capital requirements on banks or take corrective measures to reduce risk. The aim is to ensure that banks comply with EU supervisory requirements and are trustworthy. (dpa/df
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