BRUSSELS: Europe and the Arabs

Pascal Donohoe, President of the Eurogroup, said in a statement distributed in Brussels on Thursday: “I wish I could join you in Frankfurt for this event marking the tenth anniversary of the Single Supervisory Mechanism, but I am happy to be able to join you virtually. We have much to be proud of today as we reflect on this important event. The creation of the Single Supervisory Mechanism was a historic moment in the institutional transformation of the euro area. It was the right response to strengthen our banking and financial system in the wake of the global financial crisis and the European sovereign debt crisis.

We are now reaping the benefits of these institutional innovations. Our banks are more stable and more resilient. We are better able to deal with stressful events.

Fortunately, the Single Supervisory Mechanism has become an integral part of our existence.

For example, just a few days ago – in fact – I was pleased to welcome Claudia to the Eurogroup meeting in Brussels for the second of our semi-annual reports on the banking union, together with Dominique from the Financial Stability Board. This was an excellent and very timely opportunity, given the anniversary of the Single Supervisory Mechanism this week, to reflect on how far we have come over the past ten years. The first of the Single Supervisory Mechanism.
Supervision – the first pillar of the banking union
Although the time has been very difficult, including for many people in this room, it is worth remembering the context in which the European Central Bank’s banking supervision was created.
In 2012, European Council President Herman Van Rompuy presented the so-called “Four Presidents’ Report” which set out a vision for the future of the economic and monetary union.
Strengthening the architecture of the European Monetary Union was at the heart of this report.
The report proposed to raise responsibility for supervision to the European level, and to create common mechanisms to resolve bank problems and guarantee customer deposits.
As many of you will remember, part of the rationale for the Single Supervisory Mechanism was to address the so-called “financial trilemma” – the impossibility of achieving financial stability, financial integration and national fiscal policies in an integrated market at the same time.
A second crucial goal was to break the negative feedback loop between banks and sovereigns.
As the first pillar of the banking union, the Single Supervisory Mechanism has achieved new milestones and has stood the test of time.
Through the Single Supervisory Mechanism, the ECB supervises over 100 institutions across the continent, which are important because of:

their size

their importance for the individual economy or the European economy as a whole

the extent of their cross-border activities, or their receipt of direct public financial assistance
Under the supervision of the Single Supervisory Mechanism, the resilience of European banks has improved significantly over the decade:

the common equity tier 1 capital ratio of important institutions has increased by more than 3% since the establishment of the Single Supervisory Mechanism

and non-performing loans have fallen significantly from 7.5% in 2015 to 1.9% in 2024

These achievements, although small, were the result of thousands of hours of work by you.

I fully agree with the Commission’s assessment from last year that the Single Supervisory Mechanism has become a mature and well-established supervisory authority that is achieving its objectives.

That this objective has been achieved and recognised in less than a decade is a testament to you at the ECB and to all those who have worked hard at national level in our competent national bodies to build the Single Supervisory Mechanism.
A changing environment
In 2014, the concept of the banking union was a strong response to the financial crisis.
Since then, we have faced a global pandemic, another major challenge that requires us to innovate and cooperate in many ways.
Europe continues to face new challenges every day.
In the context of geopolitical uncertainty, monetary policy shifts and long-term structural issues such as climate change, digitalisation and demography, we must address these issues proactively.
To do this, we must have a strong and stable financial sector.
Looking ahead, I would like to make two points. Firstly, regarding the broader banking union project, and secondly, regarding the next phase of work on the Single Supervisory Mechanism.
Completing the banking union
As agreed by the Finance Ministers in 2022, the work on the banking union has focused primarily on strengthening the Common Framework for Banking Crisis Management and National Deposit Insurance Systems (CMDI Framework). I am pleased that negotiations between the institutions are due to start this month.
The review of the CMDI Framework includes a comprehensive set of measures designed to improve the resolution process for small and medium-sized banks.
It represents an immediate step towards completing the banking union.

But we should also not lose sight of the bigger picture and the broader importance of realising the original vision of a stable architecture for the European Monetary Union.
We all know that there is a lot of work to be done.
For the Single Supervisory Mechanism in particular, it is great to see it looking to the future, responding to the changing environment through its priorities around geopolitical shocks, climate and environmental risk management and digital transformation.
I will leave it to others, better equipped, to discuss the risk assessment programme, the evolution of risk assessment and supervision tools, analytics and systems.
Conclusion
I would like to conclude by saying
Be proud
Be confident
Be vigilant
Be proud of the work you have done for Europe. Proud of the institution and the supervisory system you have built. Proud of the joint supervisory teams, and the development of the supervisory philosophy, approach and methodology.
But in addition to pride, be confident.
Confident in how you respond to the major transformations of our time, confident in your engagement with firms, confident in your assessments and judgements. Finally, be vigilant, because none of us knows what is around the corner.