European banks lack supervision, internal control and audit – ECB

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The supervision of the hundred largest European banks is not good enough. The European Central Bank does not take decisions quickly enough, is not consistent and is too flexible for banks that take too much risk, according to the European Court of auditors.

The Court of auditors is the financial controller of the EU and looked at how things stand with the supervision of credit risks that banks take. For example, it is about how many loans a bank has outstanding and whether they still get that money back.

If a bank takes too much risk, it can cause big problems and sometimes even mean the end of the bank. This became especially evident during the credit crunch, when banks got into big trouble for taking too much risk. The European Central Bank (ECB) should monitor this, but, according to the Court of auditors, it is not doing so well enough.

The court also points out that there are no higher requirements for banks that are at high risk and that the ECB does not have enough trained staff to carry out proper supervision.

The ECB partly agrees with the Court of auditors, but generally considers that its supervision is in order. There are also no plans to hire additional staff this year.

The court’s criticism comes at a time of turmoil in the banking sector. In March, two U.S. banks collapsed: Silicon Valley Bank and Signature Bank. A short time later, the Swiss bank Credit Suisse also went under. Switzerland is not part of the EU, so Credit Suisse is not under the supervision of the ECB.

Two weeks ago, another bank had to be saved in the USA: First Republic. Currently, several other smaller US banks are still in trouble. For example, the price of PacWest plummeted in recent weeks: 80 percent of the stock market value of the Californian bank has evaporated since the beginning of this year.


By: Lesley Woutersen

Lesley Woutersen, one of the co-founders of the EconomicInform gives away all of his free time to the project. He is interested in stock exchange and digital assets. Lesley can be reached by lesley.woutersen@economicinform.com.

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