Mr Ibel will be a speaker at the EACB Convention "Co-operative banks: A new deal for more solidarity", on the 27th of October.
Dear Mr. Ibel, looking back at the past few months, how would you summarise and assess the actions undertaken by the ECB to ensure a certain flexibility in the supervisory approaches to allow banks to sustain customers and businesses while safeguarding financial stability in a crisis situation? What would you pick as the key highlights?
In March 2020 we adopted several supervisory relief measures aimed at enabling banks to absorb losses and keep lending to the real economy, preventing the risk of abrupt deleveraging processes as much as possible. As part of this effort, we announced that we would allow banks to temporarily operate below the applicable capital and liquidity buffers. These buffers were specifically designed to be used in situations like the current one in order to avoid the regulatory framework having a pro-cyclical impact. And indeed, data so far shows that loans to non-financial corporations have remained broadly stable since the outbreak of the pandemic
These relief measures were complemented by our communication on dividends, share buy-backs and variable remuneration. In the face of high uncertainty, we saw the need to preserve loss-absorbing capacity in the system to ensure that the banking sector can remain resilient and banks retain capacity to support the economy.
In addition, the operational relief provided to banks at the outset of the crisis helped them address imminent operational challenges. At the same time, we also communicated to banks our supervisory expectations regarding the effective risk management practices and sufficient operational capacity in place to be able to provide support to viable distressed borrowers.
At the end of July the ECB Supervision released its vulnerability analysis of banks directly supervised to assess the impact of the Covid-19 economic shock and identify potential vulnerabilities. The results indicate that Euro area banks can withstand the pandemic-induced stress. At the same time, we see that the impact of the crisis has yet to fully materialise especially since fiscal stimulus tools are still in place. What are your expectations and the crucial areas to look at in 2021? How are your supervisory priorities going to be impacted? What do you expect for different business models and cooperative banks in particular?
Our conclusion from the vulnerability analysis is indeed that overall, the banking sector is well capitalised to withstand the pandemic-induced stress, but if the situation worsens and the severe scenario – which assumes a deeper recession leading to a slower economic recovery – materialises, authorities must stand ready to implement further measures.
Taking into account the economic effects of the pandemic, we just launched the process of reviewing the SSM Supervisory Priorities for 2021. In this context we are currently discussing the consequences of the pandemic for asset quality, profitability and business models and how these will be reflected in our supervisory activities going forward. Fully revised priorities for 2021 will be published at a later stage.
As your supervisory activities are to return to the “business as usual” which processes would be get back to normal first and which ones may remain adjusted for a longer period?
In the COVID situation, social distancing and restrictions to travel will continue to impact our capacity to conduct on-site inspections. Health and safety is a priority for us. For this reason, investigations will continue to be conducted off-site for as long as it is necessary. All activities that do not require travelling on the other hand will return to normal as soon as the current situation allows. For example, we already announced that we will restart sending internal model decisions starting October.
Do you think that measures like the Covid-19 reporting package may stay in place for some time? Which key initiatives are you planning for next year?
The COVID-19 reporting launched in June 2020 has proven to be a priceless tool to assess and monitor on an ongoing basis the impact of the COVID-19 crisis on the institutions directly supervised by the ECB.
The information collected against this background allows us to better understand the extent to which banks’ financial and capital positions are affected by the crisis and their expected projections for the end of the financial year. This reporting allows us also to monitor the extent to which the various supporting measures granted by the relevant authorities were effective in their attempts to mitigate the impact of the crisis and support banks.
The potential extension of the COVID-19 reporting beyond 2020 will be discussed this autumn and it’s too early at this stage to assess whether further changes/an extension is warranted. As already mentioned, this report is an essential risk assessment and monitoring tool for supervisors and its evolution will also depend on the development of the crisis. In any case, the reporting requirements on payment moratoria and state guarantees developed against the background of the corresponding EBA guidelines will be maintained until end-2021, in line with the guidelines.