European Court of Auditors criticizes ECB

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The European Central Bank (ECB) must tighten its supervision of credit risks of major banks in order to prevent bank failures. This is stated by the European Court of Auditors (ECA) in a report on credit risk management in the banking union. ‘Credit risk is one of the most important and largest of a bank,’ says BNR’s house economist Han de Jong.

Despite increased efforts to monitor credit risk and banks’ problem loans, the ECB has not imposed higher capital requirements on higher-risk banks, the Court said. The supervision of banks with persistent shortcomings in credit risk management has also been insufficiently tightened, according to the European auditors.

The ECB must tighten its supervision of credit risks of large banks in order to prevent bank failures (ANP / Imago Stock & People GmbH)


‘If that credit risk is not properly managed, the chance that a bank will incur losses on their loans will increase. And that increases the risk of the bank going bankrupt’, says De Jong. The consequences of this can be major, both for savers and for society. “You don’t want that.”

The European Court of Auditors now wants the ECB to tighten up its supervision in this area, although the report also emphasizes that supervision is generally of good quality, despite some shortcomings. According to De Jong, this is also a task for the banks themselves, which must also carefully investigate to whom they provide loans. ‘But it is of great social importance that the ECB closely supervises this.’

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Banks are already becoming more cautious about extending loans, partly as a result of high interest rates and inflation. The credit flow could possibly dry up further if further regulations are imposed. And that is bad for the economy. ‘You can’t seal everything,’ emphasizes De Jong. ‘It’s about finding a good balance, but taking a risk is a core task of a bank.’

‘It’s about finding a good balance’

Han de Jong, house economist BNR

That is why it is important that banks create sufficient buffers, he says. ‘And according to the Court of Auditors, the ECB is not using all the resources at its disposal here.’ If the ECB identifies shortcomings in risk management, the ECB could impose higher capital requirements. According to the Court of Auditors, this does not always happen.

De Jong expects that the ECB will adopt most of the findings. “Only one recommendation, on the involvement of the Supervisory Board in the adoption of the budget, is apparently unnecessary by the ECB.”

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