ECB Annual Report on supervisory activities

Foreword by Mario Draghi,
President of the <strong>ECB</strong>
An essential ingredient for the euro area’s recovery is a stable banking sector that
serves the economy. And the key lesson we have learned from the crisis is that
strong regulation and effective supervision are essential ingredients for a stable
banking sector. In fact, excessive deregulation was among the causes of the global
financial crisis. So, stronger rules for the financial sector and better supervision
actually belong to the growth agenda. And major progress has been made at
European and global levels. In November 2014, European banking supervision was
established. This was a decisive step, and it has laid the foundations for a more
stable banking sector and a more integrated Europe.
Over the past few years, European banks have become more resilient in terms of
capital, leverage, funding and risk-taking. Consequently, they have been able to
withstand the economic crisis in emerging markets, the collapse in oil prices and the
immediate consequences of Brexit. Healthier banks are also able to continuously
provide credit, which is much needed to support the economic recovery in the euro
area.
European banking supervision has played an essential role in ensuring the sector’s
resilience. By introducing tough and fair banking supervision – exercised according
to the same high standards across the entire euro area – it has instilled trust in the
quality of supervision and, consequently, in the stability of banks.
Challenges remain, however. The banking sector’s capacity to fully support the euro
area’s recovery is curtailed by its low profitability. Overcapacities, inefficiencies and
legacy assets contribute to banks’ low profitability. It is up to the banks themselves to
find appropriate answers to these challenges. And for the sake of a strong recovery
in the euro area, they must do so quickly.
European banking supervision greatly contributes to a more stable banking sector in
the euro area. At the same time, it ensures a level playing field, which is necessary
for a single banking market to emerge. However, to ensure that the integrity of the
single banking market remains unquestioned, we need to finalise the banking union.
Just as we have created common supervision and resolution in the euro area, we
have to ensure that depositors are equally safe everywhere.
<strong>ECB</strong> <strong>Annual</strong> <strong>Report</strong> on supervisory activities 2016 − Foreword by Mario Draghi, President of
the <strong>ECB</strong> 3