Andrea Enria's (Chair of the Supervisory Board, European Central Bank) presentation at FIN-FSA Conference on EU financial markets today and in the future

1. Banking sector
resilience – the
post-pandemic
outlook
Andrea Enria
2 November 2021

2. Resilient capital position of banks
Source: Supervisory reporting.
Chart 1
CET1 ratio
(percentages)
13.
13.7
8
52 13.51 13.74
13.31
13.6913.88
14.32
14.16
14.19
14.35
14.3
7
14.42
15.2
15.6155.6
15.49
4.995.045.04
5.08
5.17
5.41
5.145.145.11
5.29
5.23
5.245.26
5.59
5.23
5.16
5.46
5.56
5.835.78
6
5.8
5.6
5.4
5.2
5
4.8
4.6
4.4
Chart 2
Leverage ratio
(percentages)
2 www.bankingsupervision.europa.eu ©
Q2-2021:
• CET1 ratio 15.6%, near all-time high since banking union start
• Leverage ratio 5.9%, on an increasing trend

3. Ample liquidity adds to resilience
Source: Supervisory reporting.
Chart 3
Liquidity coverage ratio
(percentages)
20%
0%
40%
60%
80%
100%
120%
140%
160%
180%
200%
90%
100%
110%
120%
130%
140%
150%
160%
2021Q2
2021Q1
2020Q4
2020Q3
2020Q2
2020Q1
2019Q4
2019Q3
2019Q2
2019Q1
2018Q4
2018Q3
2018Q2
2018Q1
2017Q4
2017Q3
2017Q2
2017Q1
2016Q4
2016Q3
2016Q2
2016Q1
2015Q4
2015Q3
2015Q2
2015Q1
2014Q4
25th-75th percentile Weighted average Median
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Q2-2021:
• Liquidity coverage ratio 173.8%
• Net stable funding ratio 129.1%
Chart 4
Net stable funding ratio
(percentages)

4. Non-performing loans ratio continues to decrease, but early
indicators show signs of deterioration
Source: ECB statistics
Note: Changing sample.
9
8
7
6
5
4
3
2
1
0
Chart 5
Non-performing loans ratio
Chart 6
NPL flows for high-NPL banks in H1 2021
Q2-2021: NPL ratio 2.3% (from 2.5% in Q1)
• However, liquidity gathered via support measures might still obscure full impact of the pandemic.
• Early indicators such as forbearance rates are showing signs of deterioration. Historically, default rates for forborne loans are higher than for non-
forborne loans.
• Cautious optimism is warranted, but we have to remain vigilant as support measure are being phased out.
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5. Lessons learned from the pandemic
• The post-GFC regulatory reforms worked as intended
• Higher capital and macro/micro buffers allowed banks to act as shock absorbers, not amplifiers as
in GFC. This time lending increased after the shock of thepandemic.
• Public support still playing a key role
• Focus now on implementation of the finalised Basel III, stability of the framework isneeded
Potential room for improvement:
• balance between structural/cyclical buffers
• heterogeneous approach of national macroprudentialauthorities
• triggers of AT1 coupons, which make banks reluctant to dip into capital conservationbuffer
5 www.bankingsupervision.europa.eu ©

6. Structural challenges
0
2
4
6
8
10
12
14
16
18
20
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Chart 7
Cost on equity and return of equity
(percentages)
CoE (estimated)
RoE (4-quarter average)
30
35
50
45
40
65
60
55
70
80
75
90
92
98
96
94
100
104
102
106
110
108
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2015201520152015201620162016201620172017201720172018201820182018201920192019201920202020202020202021202
1
Cost-to-income Ratio (right-hand scale)
Operating expenses (basis 100=2015Q1, left-hand scale)
Operating income (basis 100=2015Q1, left-hand scale)
Chart 8
Cost-to-income and components
6 www.bankingsupervision.europa.eu ©
• Euro area banks, on average, do not earn their cost of equity
• Cost efficiency is sticky
• However, some restructuring and cost optimisation is taking place: one-off costs and lagged benefits delay the evidence of change in
P&L

7. Bank M&As: encouraging signs of a rebound in bank
consolidation in Europe
a) Value of mergers and acquisitions in
the euro area
b) Number of mergers and acquisitions in
the euro area
(EUR billions) (number)
Sources: ECB calculations based on Dealogic and Orbis BankFocus
Notes: Transactions associated with the resolution of banks and distressed mergers were removed fromthe sample. Transactions are reported by the year of the
announcement. Total assets are the target’s total assets.
transactions worth more than €300 billion
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 Targeted consolidations of business lines, also
across borders: asset management, custody or
securities services as well as payment
technologies sector
 Similar to restructuring programmes, M&As entail
upfront costs, so benefits can be expected to
emerge with a lag
Chart 9
Mergers and acquisitions
 Volume of transactions highest since 2008, with

8. Digitalisation and green finance will drive business
Chart 11
Increase in remote digital payments
during the pandemic
Source: BIS
Sample: The sample comprises AR, AU, BR, CA, CH,
DE, ES, GB, HK, IN, IT, JP, NL, RU, SE, SG, US and
ZA. The black vertical line in the centre panelindicates
11 March 2020
model transformation
Chart 10
Evolution of banks’ credit portfolio probabilities of default
between 2020 and 2050: physical risks increasing over time,
while transition even brings benefits in long-run
Source: ECB economy-wide climate stress test
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9. Further integration should be pursued, within the current
setting and progressing with the Banking Union
• Branchification within the EA would allow to benefit from the one-legal-entity structure without changes of the the supervisory
attitude
55
111
166
221
136
110
85
59
34
282
252
223
193
163
S4: LCR 0%
S3: LCR 25%
S2: LCR 50%
S1: LCR 75%
Base: LCR
100%
*Excess liquidity defined as difference between high quality liquid asset buffer and sum of net cash outflows and large exposure towards
ultimate parent.
• Cross-border liquidity waivers could be coupled with intragroup financial support agreements embedded in recovery planning
minimum
Non-
transferrable
liquidity
Excess liquidity from
all subsidiaries
418
Not
Scenario for transferable
due to national
requirement large exposure
limits
Total
excess
liquidity
HQLA to meet LCR levels
Excess liquidity held in the euro area by non-
domestic subsidiaries of SSM significant
institutions
Non-
domestic
subsidiaries
9 www.bankingsupervision.europa.eu ©
Groups
CET1 ratios of parent entities and cross-border
subsidiaries
0% 5% 10% 15% 20%
Q4 2019 17.29%
Q4 2020 18.70%
Q4 2019 15.42%
Q4 2020 15.47%
Source: Supervisory data. Weighted average CET1 ratio of 117 non-domestic subsidiaries located in the
SSM and their consolidated groups.

10. The new normal of banking supervision is gradually
taking shape
10 www.bankingsupervision.europa.eu ©
• On-site work remains key. This guarantees the full intrusiveness of our supervisory approach as it is
originally conceived. We are also drawing lessons from the off-site investigations and keen to have the
feedback from these first missions restartingon-site.
• We need to work towards a true “one team” culture in JSTs and further increase collaboration
between ECB and NCAs. JSTs have reported that remote working has facilitated the free and equal
flow of information between the ECB and NCAs. It will be important to carry forward these efficiency
gains from remote working to the new normal.
• Digitalisation is not just for banks, but for supervisors as well. Supervisory technologies can help
us to get the most from the large amounts of data available, and it can allow us to focus our time onthe
aspects of our work that will have the biggest impact.