Frank Elderson: Supervisory Risk Appetite, Efficiency And Effectiveness
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Frank Elderson said European banking supervision is shifting toward sharper risk prioritisation, more efficient processes and timely remediation as banks face a more uncertain and interconnected risk environment. He cited early efficiency measures, including shorter processing times for some securitisations, while saying the full effects of the changes will take time to emerge.

Frank Elderson, vice-chair of the European Central Bank’s Supervisory Board, said European banking supervision is sharpening its risk priorities, simplifying procedures and seeking faster remediation as banks face a more uncertain and interconnected environment. He set out the approach on September 30 in Bali at an international conference of banking supervisors convened by the Basel Committee on Banking Supervision.

Elderson described three parts to the ECB’s approach: sharper risk prioritisation, simpler and more efficient supervision, and timely remediation. He said supervisors should focus on material risks rather than try to examine every risk at every bank with the same intensity every year. Those risks can involve capital and liquidity, governance, operational resilience, business models, or structural pressures such as climate-related and geopolitical risks.

He said the ECB’s risk tolerance framework makes explicit how much residual supervisory risk can be accepted when some areas receive less intensive scrutiny or are deferred. Elderson characterised that de-prioritisation as a conscious supervisory judgment within an institutional framework, rather than an accidental result of limited resources. He said the approach’s impact was beginning to emerge but that its full effects would take time to assess.

On efficiency, Elderson cited the ECB’s Next Level Supervision initiative, which reviews processes to reduce duplication, speed up work and limit information requests to what is necessary. The ECB has reviewed more than 100 supervisory guidance publications; around 40 were discontinued, while others were revised or remain under review. He also said processing for standardised, lower-risk securitisations had fallen from three months to an average of about seven days. The speech excerpt also reports a roughly 55% reduction in stress-test data points and shorter turnaround times for fit-and-proper assessments through digitalisation and AI-enabled measures.

At a glance
reportWhen: Delivered September 30, 2026
The developmentECB Supervisory Board Vice-Chair Frank Elderson outlined European banking supervision’s approach to managing complex risks at a Basel Committee conference in Bali.

How Risk Priorities Are Changing

The approach could affect how banks and supervisors allocate time and attention. If lower-priority areas are examined less intensively, supervisors may be able to concentrate on vulnerabilities they judge more material, while banks may face fewer repetitive requests and shorter processing times in some procedures. Elderson presented this as an effort to preserve safety and soundness while making oversight easier to navigate.

The model also places weight on supervisory judgment. Elderson argued that a simpler, less prescriptive framework cannot spell out responses to every emerging risk or business model. That increases the importance of supervisors being prepared to act when they judge that a bank is not managing its risks adequately. He also called on banks to apply legal requirements based on materiality and avoid seeking guidance simply to obtain ever-greater legal certainty.

These are the ECB official’s stated aims and early examples, not evidence that the changes have already improved bank resilience or reduced supervisory burdens across the system. The longer-term effect will depend on how priorities are set and whether material risks are identified and addressed in time.

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Lessons From Banking Turmoil

Elderson linked the ECB’s focus on underlying weaknesses to the banking turmoil of 2023. He said banks can meet formal capital and liquidity requirements while weaknesses in governance, risk culture or business models continue to build. In his account, that experience illustrates why supervision should look at the sources of risk as well as compliance with minimum requirements.

He placed the changes against a risk environment shaped by geopolitical fragmentation, technological change, volatile energy and commodity prices, inflation, demographic shifts, closer links with non-bank financial institutions, and climate and nature-related risks. His central argument was that greater uncertainty calls for clearer forward-looking priorities, not an attempt to scrutinise everything equally.

The speech also referred to a recent European Commission report on banking competitiveness, which Elderson said highlighted a shared responsibility to create a less risk-averse and more agile environment. He argued that this shift involves supervisors and banks, alongside other stakeholders.

“In a more complex world, effective supervision requires clearer, forward-looking prioritisation.”

— Frank Elderson, ECB Supervisory Board vice-chair

Effects Still Need Time

Elderson said the effects of the risk tolerance framework are emerging, but that it will take time for its full impact to be felt. The speech excerpt does not provide a timetable or measures for evaluating whether the changes improve supervisory outcomes, reduce burdens for banks, or affect the detection of emerging problems.

It also does not specify which risk areas will be deprioritised at particular banks, how much review intensity will change, or how the ECB will report accepted residual supervisory risk. The cited process figures describe selected initiatives; the excerpt does not give a system-wide assessment of their effect on costs, resilience or supervisory capacity.

ECB Measures Continue

The ECB’s Next Level Supervision work is continuing: Elderson said several guidance publications remain under review, including some undergoing more in-depth examination. He also said the broader impact of the risk tolerance framework would take time to become clear. The speech did not announce a deadline for completing these reviews or set out a date for a comprehensive assessment.

For banks and supervisors, the next practical steps will include applying the prioritisation framework in day-to-day oversight and continuing process changes. Whether those steps sustain safety and soundness while making supervision more efficient remains to be assessed over time.

Key Questions

What did Frank Elderson announce?

He described the ECB’s approach to European banking supervision: sharper risk prioritisation, simpler and more efficient processes, and timely remediation. The speech set out the approach and selected examples; it did not announce a new regulation.

What is the ECB’s risk tolerance framework?

As Elderson described it, the framework clarifies how much residual supervisory risk the ECB can accept when some areas receive less intensive scrutiny or are deferred. He said these choices are conscious supervisory judgments.

What efficiency changes did Elderson cite?

He said the ECB reviewed more than 100 supervisory guidance publications, discontinued around 40, and reduced processing for standardised, lower-risk securitisations from three months to an average of about seven days. He also cited a roughly 55% reduction in stress-test data points.

Does the ECB say the changes have improved bank safety?

The speech does not establish that outcome. Elderson said the approach’s impact was beginning to emerge and that its full effects would take time to assess.

Source: primary

This content is for general information only and is not financial, tax or legal advice. Consult a qualified professional for decisions about your money.
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