Crisis management by the European Central Bank: a substantial framework but flaws remain, say EU Auditors

The European Central Bank (ECB) has established a substantial framework for crisis management, but some flaws remain to be addressed, according to a new report from the European Court of Auditors (ECA). Guidance to staff for early intervention assessments as well as for “failing or likely to fail” assessments should be enhanced, say the auditors.

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2018-01-17

The ECB assumed extensive responsibilities for banking supervision in 2014. There are now around 120 banks in the euro area under its remit. Recent legislation provides for increasingly intensive supervisory attention from the ECB when a “systemically important” bank in the EU exhibits signs of being in difficulty. Should a bank reach the point where it is failing or likely to fail, it is then for the Single Resolution Board to take charge of its resolution. The auditors found that the ECB has in fact established a substantial framework for crisis management within its supervisory remit.

Resources for the assessment of bank recovery plans and the supervision of banks in crisis appear satisfactory, despite some weaknesses in initial planning and a need to improve the allocation of staff to the most urgent situations.

The ECB is finalising arrangements for external cooperation and coordination with other supervisory authorities and the Single Resolution Board. Nevertheless, the outstanding issues have the potential to delay and restrict information-sharing and detract from the efficiency of coordination, say the auditors.

Procedures for assessing banks’ recovery plans are in place, and the assessors have access to useful tools and guidance. However, the results of recovery plan assessments are not systematically used for crisis identification and response.

The ECB’s operational framework for crisis management has some flaws, say the auditors, and there are some signs of inefficient implementation. Guidance for early intervention assessments is underdeveloped and does not define objective criteria or indicators for determining that a bank has entered a crisis situation. There is no guidance on the best use of the ECB’s powers in specific scenarios and guidance on “failing or likely to fail” assessments is lacking in scope and detail.

The auditors make a number of recommendations to improve the operational efficiency of crisis management by the ECB. These include better use of the insights gained from recovery plan assessments.

Source: European Court of Auditors

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