The next SSM term: supervisory challenges ahead

18-03-2019

This paper focuses on two ways in which overall bank supervision and oversight can be improved in the next SSM term (i) by more effective market discipline of banks by investors in banks’ securities, and (ii) by more effective oversight of bank risk taking by bank boards. To improve market discipline, the ECB should consider facilitating the publication of additional bank-specific supervisory information. In addition, the ECB can cooperate with the EBA to increase the coverage of SSM banks in the EU-wide transparency and stress test exercises. The ECB could also review the quality of banks’ Pillar 3 reports as part of its supervisory process, and it could potentially use market information on banks’ valuation and cost of funding to inform its supervisory work. Furthermore, the ECB should revise its current guidance regarding bank boards that has the effect of increasing shareholder influence, as bank shareholders tend to benefit more from excessive bank risk taking than other stakeholders including the bank’s management.

This paper focuses on two ways in which overall bank supervision and oversight can be improved in the next SSM term (i) by more effective market discipline of banks by investors in banks’ securities, and (ii) by more effective oversight of bank risk taking by bank boards. To improve market discipline, the ECB should consider facilitating the publication of additional bank-specific supervisory information. In addition, the ECB can cooperate with the EBA to increase the coverage of SSM banks in the EU-wide transparency and stress test exercises. The ECB could also review the quality of banks’ Pillar 3 reports as part of its supervisory process, and it could potentially use market information on banks’ valuation and cost of funding to inform its supervisory work. Furthermore, the ECB should revise its current guidance regarding bank boards that has the effect of increasing shareholder influence, as bank shareholders tend to benefit more from excessive bank risk taking than other stakeholders including the bank’s management.

Išorės autorius

H. Huizinga