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Over the past decade, European banking supervision has contributed to the increased resilience of European banks and thus to financial stability. The results of the annual Supervisory Review and Evaluation Process (SREP) for 2024, which we have published today, show that the banks directly supervised by the ECB generally have strong fundamentals. The asset quality of European banks is robust, they have overall solid capital positions, good levels of profitability, and are a reliable source of funding and financial services for European households and firms.
Looking ahead, banks will need to adapt to a changing environment. Faced with heightened geopolitical risks, structural change, climate and environmental risks, and downside risks to the macroeconomic outlook, strong financial and operational resilience will remain key. Corporate insolvencies are on the increase, potentially leading to higher credit risk. The public sector may have more limited capacity than in the past to buffer adverse shocks. The digitalisation of financial services is changing the competitive landscape. Banks must therefore remain vigilant and prudent to sustain their business and operations. Their currently good levels of profitability provide them with an opportunity to strengthen their resilience.
Against this background, the current SREP cycle has not resulted in major changes to banks’ SREP scores or overall Pillar 2 requirements in aggregate terms. The annual Supervisory Review and Evaluation Process assesses each bank’s risks, business model viability and resilience. Where we identify shortcomings, supervisory measures are put in place that ensure remediation by the banks. Banks’ individual SREP scores and Pillar 2 requirements take bank-specific risks into account.
The supervisory priorities for the years 2025-27 continue to focus on risks related to macro-financial threats and geopolitical shocks, as well as on challenges stemming from the digital transformation, while emphasising the need to remediate shortcomings, particularly those related to governance and risk management.
This year, we have taken a large step forward to make ECB Banking Supervision more efficient and effective. We have launched a comprehensive reform of the SREP to respond to emerging risks in a more targeted way, to simplify, and to reduce complexity. The reform will be implemented over the next two years.
Let me provide an overview of the resilience of the European banking system....
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