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Frank Elderson, Vice-Chair of the ECB Supervisory Board, told a Basel committee conference in Bali that European banking supervision is shifting toward conscious supervisory risk tolerance, simpler processes and faster remediation. He cited tangible results including a cut in securitisation approval times from three months to about seven days.
Frank Elderson, Vice-Chair of the ECB’s Supervisory Board, said European banking supervisors must consciously accept more residual supervisory risk and simplify their processes rather than trying to monitor every risk in every bank every year. Speaking on a panel on “Navigating the new financial landscape” at the BCBS international conference of banking supervisors in Bali on 30 September 2026, Elderson said the ECB’s approach now rests on three pillars: sharper risk prioritisation, simpler and more efficient supervision, and timely remediation.
Elderson argued that the supervisory challenge is not simply that there are more risks, but that the risk landscape has become increasingly uncertain, interconnected and volatile, shaped by geopolitical fragmentation, technological change, volatile commodity prices, rising inflation, demographic shifts, growing ties with non-bank financial institutions, and persistent climate and nature-related risks. In a more complex world, he said, effective supervision requires clearer, forward-looking prioritisation — not attempts to “monitor everything, everywhere, all at once.”
Central to the new approach is the ECB’s risk tolerance framework (RTF), through which the supervisor has consciously increased its supervisory risk tolerance. According to Elderson, the RTF clarifies how much residual supervisory risk can be accepted when certain areas are reviewed less intensively or deferred. He stressed that de-prioritisation is an active supervisory judgement, not a passive or resource-driven omission, and that lower-priority risk areas at individual banks are no longer subject to the same intensive scrutiny every year.
On efficiency, Elderson cited concrete results from the ECB’s Next Level Supervision initiative: more than 100 supervisory guidance publications have been reviewed, with around 40 discontinued; processing days for standardised, less risky securitisation approvals have fallen from three months to an average of around seven days; and stress testing data points have been reduced by around 55%. Turnaround times in fit-and-proper assessments have also been shortened through digitalisation and AI-enabled tools, he said.
Why Supervisory Risk Tolerance Matters
Elderson’s remarks signal how one of the world’s largest banking supervisors intends to allocate its attention as risks multiply. For banks, fewer data requests and shorter approval times could lower compliance costs — a point that connects directly to the European Commission’s recent report on banking competitiveness, which Elderson cited, calling for a less risk-averse and more agile environment.
The speech also carries a message for banks themselves: Elderson said the cultural shift toward greater risk appetite is a shared responsibility, and that banks must “refrain from continuous demands for guidance in search of an ever-higher degree of legal certainty.” He cautioned that a less prescriptive framework places greater weight on supervisory judgement, which he argued is more capable of capturing emerging risks than an ever-more-detailed rulebook that could invite regulatory arbitrage.
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Lessons From the 2023 Banking Turmoil
:Elderson grounded the approach in lessons from past crises, saying supervisors had learned “often the hard way” that compliance with minimum capital requirements alone does not keep banks safe and sound. He pointed to the 2023 banking turmoil, which showed that banks can meet all formal capital and liquidity requirements while weaknesses in governance, risk culture or business models accumulate beneath the surface until it is too late.
European supervision therefore focuses on material risks wherever they arise — whether to capital or liquidity, governance, operational resilience, or structural risk drivers such as climate, nature-related and geopolitical risks. The Next Level Supervision initiative, which drives the efficiency work, has involved end-to-end reviews of supervisory processes to reduce duplication and request only strictly necessary information.
“In a more complex risk environment, supervisors must become more focused if they want to remain effective.”
— Frank Elderson, Vice-Chair of the ECB Supervisory Board
Unproven Impact and Political Openness
Elderson himself acknowledged that the full effects of the new approach are not yet visible, saying the impact is “already emerging, albeit that, naturally, it will take some time before the full effects are felt.” He gave no timeline for when the supervisory culture shift would be complete.
It also remains unclear how banks and other stakeholders will respond to his call to take more responsibility for applying the law based on materiality, and whether the European Commission and national supervisors will support the less risk-averse environment he described. The speech does not specify which lower-priority risk areas are being de-prioritised at individual institutions.
Continued Simplification Under Next Level Supervision
Elderson said several supervisory guidance publications are still undergoing more in-depth review, suggesting further streamlining of the ECB’s supervisory framework lies ahead. The efficiency drive under Next Level Supervision, including digitalisation and AI-enabled tools for assessments, is expected to continue.
Beyond the ECB, the outcome of the cultural shift Elderson described depends on banks, the European Commission and other stakeholders embracing a materiality-based approach — something he framed as a shared responsibility rather than a supervisory decision alone.
Key Questions
What is the ECB’s risk tolerance framework?
According to Elderson, the risk tolerance framework (RTF) clarifies how much residual supervisory risk can be accepted when certain areas are reviewed less intensively or deferred. It makes de-prioritisation an explicit, conscious supervisory judgement rather than a resource-driven omission.
Does the new approach mean weaker supervision of banks?
Elderson said the changes aim to deliver the same level of safety and soundness while cutting undue complexity, without lowering guardrails or weakening resilience. Critics’ views on whether reduced scrutiny of lower-priority risks affects resilience were not addressed in the remarks.
What concrete efficiency results has the ECB reported?
Elderson cited the review of more than 100 supervisory guidance publications (around 40 discontinued), a reduction in securitisation approval times from three months to about seven days for standardised, less risky transactions, and a roughly 55% cut in stress testing data points.
Why did Elderson reference the 2023 banking turmoil?
He used it to argue that banks can meet all formal capital and liquidity requirements while weaknesses in governance, risk culture or business models accumulate unnoticed — a reason to focus supervision on root causes and material risks.
What role do banks play in the change?
Elderson said the shift toward a less risk-averse environment is a shared responsibility and that banks must take more responsibility for applying the law based on materiality, rather than continuously requesting guidance in pursuit of greater legal certainty.
Source: primary
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