Elderson: ECB supervision has raised its risk tolerance and no longer checks every risk every year

Victoria Shinder05 October 2026, 07:242 min read

Frank Elderson, Vice-Chair of the ECB's Supervisory Board, set out how European banking supervision is changing in a contribution to a panel at the Basel Committee's international conference of banking supervisors, published by the ECB on 30 September. It is one official's view of supervisory practice, not a monetary policy statement.

The problem. Banks operate amid geopolitical fragmentation, rapid technological change, volatile energy and commodity prices, rising inflation, closer links with non-bank institutions and climate and nature risks. The challenge, Elderson said, is not simply that there are more risks but that the landscape is more uncertain, interconnected and volatile, and supervisors should not try to monitor everything, everywhere, all at once.

Three pillars. He described the ECB's approach as sharper risk prioritisation, simpler and more efficient supervision, and timely remediation. Citing the 2023 banking turmoil, he said banks can meet every formal capital and liquidity requirement while weaknesses in governance, risk culture or business models build up beneath the surface, so supervision focuses on material risks wherever they arise.

A higher risk tolerance, on purpose. Through its risk tolerance framework, the ECB has, in his words, consciously increased its supervisory risk tolerance. The framework sets how much residual risk can be accepted when certain areas are reviewed less intensively or deferred. Lower-priority areas at individual banks are no longer examined with the same intensity every year. Elderson stressed that de-prioritisation is an active, conscious judgement, not a passive outcome or a gap caused by limited resources.

A request to banks. A less risk-averse, more agile environment is a shared responsibility, he said, echoing the European Commission's recent report on banking competitiveness. Banks should apply the law based on materiality and refrain from continuous demands for guidance in search of ever more legal certainty. A simpler framework, he added, puts more weight on supervisory judgement, not less, and on the willingness to act when risks are badly managed. Under the Next Level Supervision initiative, processes have been reviewed end to end to move faster, reduce duplication and ask only for strictly necessary information, without lowering guardrails.

What it means

The message to euro area banks is two-sided: lighter, more selective scrutiny of what supervisors judge immaterial, combined with more discretion and faster action where they see material risk. For banks, fewer routine requests may come with less predictability about where supervisors will look next.