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Regulation in banking

Regulation in banking

The European Central Bank (ECB) published its annual report on supervisory activities in March. It provides useful insight into the 2016 priorities and workings of the ECB as a supervisor.



Anne-Sophie Minaldo


KPMG in Luxembourg


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Return-on-equity (RoE) averaged 4.6% in 2015. The EBA’s most recent estimate of EU banks’ cost of equity was 9.15%. The ECB has reiterated its message that the large number of non-performing loans (NPLs) is clearly dragging RoE down and impairs banks’ abilities to generate capital. One of the keys to addressing this is to proactively address NPLs.

Three special initiatives will carry on

The SSM’s three special initiatives of 2015—options and national discretions, the supervisory review and evaluation process (SREP), and NPLs—remain on the agenda for 2016. Of note, the rules for options and national discretions came into force in March 2016.  

Interesting details on supervisory activities and organizational design

Notable details on supervisory activities and organisational design
Besides the aforementioned and already well-known strategic stance of the ECB, the report outlines some interesting details on supervisory activities and organisational design.

Specifically, the ECB is now operating at nearly full capacity with around 1,000 permanent staff members. However, KPMG’s ECB Office understands that this number is also significantly augmented by national experts seconded to the ECB, giving the institution a large pool of staff-power. This contrasts with institutions such as the EBA who are forced to manage with significantly smaller staff resources.

The supervisory fees levied in 2015 totalled €296 million, which is a relatively high figure but not unexpected since this project by the ECB is still in the start-up phase. For comparison, BAFIN—which has over 2,500 staff members and covers banking, insurance, and securities firms—charged just over €200 million for the 2014 industry levy. The ACPR in France, with a staff of just over 1,000, charged approximately €185 million to the banking and insurance industry in 2014. Of note is that the ECB recently announced a budget of €404 million for 2016. It seems inevitable that, with this escalation in costs, budget and cost control may soon become an issue for the SSM.

In its discussion of cooperation with other regulators, the report mentions that a Memorandum of Understanding that prioritises third countries will be signed in 2016. This area of cooperation between supervisors is something that global 


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