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Frank Elderson said the ECB is adapting European banking supervision to a more uncertain and interconnected risk environment. He described three pillars: sharper risk prioritization, simpler processes and timely remediation, while stressing that the approach does not lower safety standards.
Frank Elderson, vice-chair of the ECB Supervisory Board, said European banking supervision is being reshaped to focus more clearly on material risks, simplify processes and address problems sooner. Speaking at an international banking supervisors conference in Bali on 30 September 2026, he said a more uncertain financial landscape requires supervisors to prioritize risks rather than examine every risk at every bank in equal detail.
Elderson described three mutually reinforcing pillars: sharper risk prioritization, simpler and more efficient supervision, and timely remediation. He said supervisors need to consider risks to capital and liquidity alongside governance, operational resilience, business models and structural factors such as climate, nature and geopolitical risks. Meeting formal capital and liquidity requirements alone, he said, may not reveal weaknesses building in those areas.
The ECB’s risk tolerance framework sets out how much residual supervisory risk may be accepted when some areas receive less intensive attention or are deferred. Elderson characterized those decisions as deliberate judgments within an institutional framework, rather than passive omissions caused by limited resources. Lower-priority areas at individual banks will not necessarily receive the same intensive scrutiny every year.
Under the ECB’s Next Level Supervision initiative, the bank has reviewed supervisory processes to reduce duplication, speed up work and request only necessary information, Elderson said. He reported that more than 100 guidance publications had been reviewed, around 40 discontinued, and the average processing time for standardised, less risky securitisations reduced from three months to about seven days. He also cited a roughly 55% reduction in stress-testing data points. He said these changes are intended to free capacity for material risks without weakening resilience.
How Priorities Shape Bank Oversight
The policy changes could affect how banks engage with supervisors and where supervisory resources are directed. More targeted scrutiny may mean less frequent intensive reviews of lower-priority areas, while risks considered material can receive greater attention. Elderson said the objective is to maintain the same level of safety and soundness while making the framework easier for banks and supervisors to navigate.
The approach also places greater weight on supervisory judgment. Elderson said rules cannot anticipate every emerging risk or every bank’s business model, and that trying to do so could make the rulebook more complex and create opportunities for regulatory arbitrage. He called on banks to take responsibility for applying laws based on materiality rather than repeatedly seeking guidance for greater legal certainty.
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Lessons From Recent Banking Stress
Elderson pointed to the 2023 banking turmoil as a reminder that formal compliance with capital and liquidity requirements does not by itself rule out weaknesses in governance, risk culture or business models. He said the episode demonstrated why supervision should examine underlying causes and material risks, rather than treat regulatory thresholds as a complete picture of a bank’s condition.
He also described the wider environment facing banks: geopolitical fragmentation, technological change, volatile energy and commodity prices, inflation, demographic shifts, closer links with non-bank financial institutions, and climate- and nature-related risks. The ECB’s stated response is to prioritize amid that uncertainty, rather than attempt to monitor every issue everywhere at once.
“In a more complex world, effective supervision requires clearer, forward-looking prioritisation.”
— Frank Elderson, ECB Vice-Chair of the Supervisory Board
How the New Approach Will Land
Elderson said the approach’s impact is beginning to emerge, but that its full effects will take time. His remarks did not specify how supervisory priorities will change at individual banks, which risk areas may be deferred in particular cases, or how the ECB will measure the framework’s overall effect on safety and soundness.
The figures he cited describe process changes, including shorter processing times and fewer data points; they do not by themselves establish how those changes affect bank resilience or supervisory outcomes. The speech also did not give a timetable for completing the reviews of guidance publications that remain under more detailed assessment.
Further Reviews and Supervisory Decisions
The ECB’s work under Next Level Supervision includes continued review of its guidance and processes, Elderson said. Several publications are undergoing more in-depth review, while other changes have already been made. He gave no dates for completing the remaining reviews.
Supervisors will continue to make risk-prioritization decisions within the risk tolerance framework. Elderson said a broader cultural shift also depends on banks and other stakeholders taking responsibility for applying the law based on materiality; how that shift develops remains to be seen.
Key Questions
What did Frank Elderson announce?
He outlined the ECB’s approach to more focused banking supervision: prioritize material risks, simplify supervisory processes and address problems in a timely way.
Does the ECB plan to reduce banking safety standards?
Elderson said simplification is meant to free supervisory capacity without lowering guardrails or weakening resilience. He described the objective as maintaining the same level of safety and soundness.
What is the ECB’s risk tolerance framework?
It clarifies how much residual supervisory risk may be accepted when some areas are reviewed less intensively or deferred. Elderson said these are conscious supervisory judgments, and lower-priority areas may not receive the same intensive scrutiny every year.
What changes has the ECB reported so far?
Elderson said the ECB reviewed more than 100 guidance publications and discontinued around 40. He also cited an average processing time of about seven days for standardised, less risky securitisations, down from three months, and around 55% fewer stress-testing data points.
Source: primary
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