Frank Elderson: Powers, ability and willingness to act – the mainstay of effective banking supervision

Speech by Mr Frank Elderson, Member of the Executive Board of the European Central Bank and Vice-Chair of the Supervisory Board of the European Central Bank, at the House of the Euro, Brussels, 7 December 2023.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Introduction

The March 2023 turmoil sent shockwaves through the financial world. It brought back ominous memories of the fall of Northern Rock and Lehman Brothers, and the ensuing great financial crisis.

Start-ups and venture capitalists that deposited money at Silicon Valley Bank (SVB) were in a bind.

People worried that more banks would start to wobble.

Investor trust suddenly eroded and banks' stock prices plummeted.

The collapse of SVB and takeover of Credit Suisse became the most serious system-wide banking stress since 2008.

Several reports have now been published on the lessons learned from this crisis episode and they all highlight the importance of effective banking supervision.

In its candid investigation report into the failure of SVB, the US Federal Reserve concludes that supervisors were too focused on accumulating supporting evidence, instead of pushing banks to fix their risk management.

The report issued by the Basel Committee on Banking Supervision (BCBS) invites supervisors to ''review their supervisory toolkits to ensure they are sufficient to drive concrete action at banks''.

And the IMF report "Good supervision: Lessons from the Field" concludes that supervisors around the world would be well advised to reflect on whether they have the appropriate powers, ability and willingness to act.

In my remarks today, I am taking up the question posed by the IMF. Do we, at the ECB, possess the necessary powers, ability and, crucially, the willingness to act in banking supervision? The short answer is an unequivocal yes. And we are increasingly focused on taking action to get banks to remedy deficiencies that have so far remained unaddressed.