- Solid capital and liquidity positions and good profitability across banks
- Internal governance, risk management and operational resilience still key areas of concern
- Average SREP score broadly stable; Pillar 2 requirements for CET1 capital slightly up, from 1.1% to 1.2%
- Qualitative measures on credit risk management, internal governance and capital adequacy
- Macro-financial threats and severe geopolitical shocks, remediation by banks and risks of digital transformation as supervisory priorities
The European Central Bank (ECB) published the results of its Supervisory Review and Evaluation Process (SREP) for 2024 and its supervisory priorities for 2025-27.
The euro area banking sector remained resilient in 2024. On average, banks maintained solid capital and liquidity positions, well above regulatory requirements. The aggregate Common Equity Tier 1 (CET1) ratio stood at 15.8% in mid-2024, which is a slight improvement compared with the previous year. The leverage ratio increased slightly to 5.8%. Higher interest rates continued to sustain banks’ profitability.
Looking ahead, however, the weakening macroeconomic outlook and structural changes in the economy call for heightened vigilance. Geopolitical risks are often not priced in financial markets until they materialize, potentially leading to abrupt risk repricing which could increase risks to liquidity and lead to additional losses. Concerns around banks’ governance, risk management – including climate and nature-related risks – and operational resilience persist and require swift remediation due to the uncertain risk environment.
The ECB also published the supervisory priorities for 2025-27, focusing on making banks more resilient to immediate macro-financial threats and severe geopolitical shocks (Priority 1); ensuring banks remediate known material shortcomings in a timely manner (Priority 2); and ensuring banks tackle challenges stemming from digital transformation and new technologies, prudently managing the associated risks (Priority 3). These priorities largely continue to build upon those set last year.