ECB’s Elderson calls for banking integration and simpler supervision

Frank Elderson, a member of the European Central Bank’s Executive Board, says Europe should tackle fragmentation in its banking market rather than weaken regulation, while making supervision simpler and more proportionate for smaller banks.

In an interview with Austrian newspaper Die Presse, conducted on 14 October and published by the ECB on 20 October, Elderson argued that cross-border banking remains limited and that differences in national rules prevent banks from benefiting fully from economies of scale and sharing risks across the European market. [1]

He called for completion of the EU’s Single Market, savings and investments union and banking union, including the establishment of a European deposit insurance scheme. He said integration and simplification should advance together, and urged the European Commission’s banking reform package to address both.

Elderson also backed easing some supervisory requirements for smaller, less complex banks. He said raising the threshold for the simplified regime from €5 billion to €10 billion in total assets could bring about 150 more banks within it. Other options, he said, include less frequent regulatory reviews where banks’ risk profiles allow and making greater use of existing data in stress tests.

The ECB official said such changes should not weaken core prudential standards. Banks would still need sound governance, risk management, adequate capital and liquidity, and resilience to emerging risks. He said the existing simplified regime requires small and non-complex banks to report up to 30% of the data required from large banks.

On artificial intelligence, Elderson pointed to potential gains in risk management, fraud detection and efficiency, alongside cybersecurity, bias, data quality and reliance on a small number of cloud providers. He said banks had been asked in July to reassess cybersecurity measures and review IT budgets and staffing, with action plans on AI-related cyber risks due to the ECB by the end of October.

He also warned that risks linked to private credit and other non-bank finance can feed back into banks through their connections. A bank might, for example, lend to a private credit provider while also financing companies that provider lends to, creating concentrations of risk that may not be apparent until problems emerge.