The European Court of Auditors stated in a report today, Friday, that "supervisors from the European Central Bank (ECB) typically go easy on banks regarding their management of credit risks, especially with the worst-performing banks." The report highlighted several areas of inadequacy in the ECB’s operations. The ECB supervises over a hundred of the largest banks in the eurozone and often complains that banks do not take the risks presented by non-performing loans seriously, failing to identify problems or setting aside financial provisions as a precautionary measure.
However, the report released today indicates that "the problem is more systemic than just a lack of compliance from the banks," concluding that the ECB does not apply its rules consistently, tends to relax standards for higher-risk banks, and takes longer than necessary to make capital-related decisions.
Moreover, it pointed out that the oversight body often lacks the sufficient number of supervisory staff to carry out its assigned tasks. The auditors' report noted that "the ECB has not imposed higher (capital) requirements proportionately when banks faced greater risks, implying that risks are not clearly linked to the imposed requirements." It added, "For higher-risk banks, the ECB consistently opted for minimum requirements within predetermined ranges," noting that "the ECB has systematically failed to escalate supervisory measures sufficiently when credit risks rise and remain elevated."
