The EU Court of Auditors against the ECB
The ECB must strengthen it supervisory effort to ensure that banks ensure aadequate management of credit risk, especially when borrowers they do not repay the loans taken out. He is held by the European Court of Auditors emphasizing that unsatisfactory management from this point of view “can jeopardize the bank holding themselves and of the whole financial system“. Despite the increased efforts made in the supervision of credit risk and bad bank loansthe ECB “has not imposed on the banks capital requirements directly proportional to the risk to which they were exposed, nor did it exacerbate them sufficiently supervisory measures if the banks presented persistent shortages in credit risk management.
The Frankfurt replica
The reply from the ECB arrived shortly. “Although it is possible to use tools and powers in different waysthe chosen approach was the most effective and the most efficient as demonstrated by the reduction in NPLs and the increase in coverage», reads a document issued by Frankfurt.
In detail, the ECB argued that the methodology applied to determine the additional capital (second pillar requirements) ensures that the risks are adequately covered. And that proportionality is not always adequate. As for the length of the SREP process, the ECB is already taking steps to reduce its duration.
“Revised the SREP methodology”
On NPLs, the ECB replies that the resolution of non-performing loans takes time, and cannot be done quickly without causing negative effects significantly adverse for the economy. As for the SREP, the ECB explained that during 2022 it reviewed the methodology for assessing credit risk. He also specified that the differentiated treatment between banks takes into account the specific circumstances of individual banks.