ECB proposes lighter supervision framework for around 150 additional smaller banks

Berlin, Germany. The European Central Bank (ECB) is proposing changes that could bring around 150 additional smaller banks under a lighter regulatory and supervisory framework, according to Executive Board member Frank Elderson.

Expanding the existing framework

In a post on the ECB’s supervision blog, Elderson, who is also vice-chair of its Supervisory Board, outlined proposals to reduce the burden on small and non-complex institutions (SNCIs) without weakening the safeguards underpinning banking stability.

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Rather than creating a separate regulatory regime for smaller banks, the proposals would expand the existing SNCI framework by widening eligibility and reducing the frequency and intensity of some supervisory activities.

The approach is based on the principle that regulatory requirements should reflect a bank’s size, complexity and risk profile.

Smaller banks’ role in the economy

Elderson described Europe’s diverse banking landscape as a strength, highlighting the contribution of smaller and locally focused banks.

“These institutions play an important role in financing households and small and medium-sized enterprises, helping innovative ideas become successful products and supporting jobs and investment across the region,” he wrote.

He argued that a banking sector combining different business models, sizes and areas of expertise was better equipped to meet the European economy’s financing needs, which he linked directly to competitiveness.

Maintaining safeguards

Elderson stressed that smaller banks remained exposed to risks facing the wider financial sector. He cited geopolitical risks, cyber resilience in the age of frontier artificial intelligence models, digitalisation, and climate and nature-related risks.

“Depositors in smaller banks should be just as confident that their savings are safe and their bank is well managed, resilient and subject to robust risk management standards as those in larger institutions,” he wrote.

The ECB believes a more focused framework could help smaller banks concentrate resources on their most significant risks while reducing compliance work that does not materially improve their resilience.