Claudia Buch: Current challenges in supervision – new challenges for researchers
Keynote speech by Prof Claudia Buch, Chair of the Supervisory Board of the European Central Bank, at the 2024 Annual ECB Banking Supervision Research Conference, Frankfurt am Main, 11 June 2024.
The views expressed in this speech are those of the speaker and not the view of the BIS.
After the 2008 financial crisis, some called for a return to "boring banking". More than 15 years later, banking remains anything but boring. Strong governance and risk control mechanisms are needed to deal with emerging risks. Strengthening and maintaining resilience in turbulent times requires adequate capitalisation, sufficient liquidity and a high degree of operational resilience.
Similarly, banking supervision remains far from dull. Turmoil on international banking markets in March last year showed that fragilities in banks' risk management and governance can become exposed if adverse shocks hit. If supervisors fail to follow up on their findings quickly and effectively, they may have to manage rapidly emerging crises. This is despite the significant progress that has been made in increasing banks' resilience and strengthening resolution frameworks.
So, supervision is challenging. Supervisors need a sound understanding of idiosyncratic, bank-specific risks. They need to understand the macroeconomic and competitive environment in which banks operate. They need to assess how future events, which are unpredictable and highly uncertain, might affect the sustainability of banks' business models and risk profiles. Cyber risks, climate-related and environmental risks or geopolitical risks are not entirely new – but their intensity has increased and there is little recent historical experience of these risks materialising.
You could call it a risk assessment paradox. Precisely at a time when forward-looking risk assessments are needed to cut through the uncertainty that surrounds us, existing models may not be very useful and analytical tools are often not very sharp.
These are the challenges that supervisors need to respond to. They need the right skills and mindsets to assess and address risks in banking, and they are restricted by the available resources. In this context, the Supervisory Board of the ECB has just decided on a significant reform to make European banking supervision more effective and efficient.
So where does the perspective of researchers come in? Having spent many years doing banking research myself, I am a firm believer in the power of state-of-the-art analytical work in providing clear, data-driven insights that can inform decision-making.