The European Central Bank oversees more than 100 of the biggest banks in the euro zone and often complains that banks do not take the risks posed by bad loans seriously, fail to detect problems or avoid provisioning as part of measures precautionary. .
But Friday’s report says the problem is more systemic than bank non-compliance.
The report concludes that the ECB does not apply its rules consistently, tolerates high-risk banks, takes too long to make capital decisions and does not always have sufficient supervisory staff to carry out well the tasks entrusted to them.
The Court of Auditors’ report finds that “the ECB did not impose proportionally higher capital requirements when banks faced greater risk, which means that the risk is not clearly linked to the requirements imposed”.
“For high-risk banks, the ECB has always chosen requirements at the lower end of predetermined ranges,” the report adds, noting that the ECB has inherently failed to sufficiently intensify controls when credit risks increase and remain high.
The report also showed that this practice forced lower-risk banks to have stricter capital requirements than higher-risk banks.
The report is the first since the European Central Bank agreed in 2019 to provide sensitive data on specific banks for audit and oversight purposes, but the report’s recommendations are not binding.
In its response to the report, the ECB mainly defended its practices but also acknowledged problems.
“The European Central Bank believes that its current methodology for determining additional capital requirements ensures that all actual risks to which a financial institution may be exposed are appropriately covered,” he said.
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