ECB supervision backs regulatory modernisation to safeguard European banking stability

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ECB backs banking regulation update

Highlights

ECB Supervisory Board Member Sharon Donnery warned on 6 November 2026 that outdated rules would raise costs and weaken banking system protection.
Donnery cited alignment with Financial Stability Board draft principles, advocating for process simplification, responsible tech adoption, and enhanced risk-based oversight.
She emphasized that capital and liquidity requirements remain core, but called for a more integrated Single Market and improved cross-border conditions to boost European banking resilience.

ECB case for updating supervisory safeguards

According to European Central Bank, as outlined in a keynote speech by the ECB's supervisory arm, Sharon Donnery, a Member of the Supervisory Board, says leaving banking rules and supervisory practices unchanged for the next decade would raise costs and weaken protection as the financial system evolves.

Speaking in Frankfurt am Main on 6 November 2026 at the IIF European Banking Regulation and Supervision Colloquium, Donnery says some existing safeguards could remain effective, but others could leave banks and authorities exposed to risks they were not designed to address. She argues that banks and supervisors would also keep spending time and money on requirements that have lost their usefulness or on tasks that technology can perform faster and more cheaply.

Donnery links that approach to the Financial Stability Board's recently published draft principles, which she says are closely aligned with reforms already being pursued at the ECB. Those reforms include simplifying processes, adopting new technologies and tools responsibly, sharpening the focus on the most important risks and preserving resilience.

She also calls on stakeholders, including financial institutions, researchers and civil society organisations, to contribute evidence and experience to the FSB's public consultation on modernisation.

Stability goals and implications for Europe’s banking sector

In the speech, Donnery says keeping the financial system safe does not mean eliminating risk, because banks must continue lending, financing homes and supporting business investment for the wider economy to grow. Instead, she says safety depends on banks managing the risks they take and holding the resources needed to withstand losses and funding stress while maintaining essential operations.

That framework keeps capital and liquidity requirements at the core of supervision. Donnery says capital helps absorb losses, protect depositors and reduce the risk of taxpayer support for failing banks, while liquidity requirements help ensure banks can meet payments as they fall due, including during stress.

She adds that internal governance and risk management remain central, with boards and senior management responsible for recognising and responding to changing risks. Even then, bank failures can still occur, meaning orderly failure-management arrangements are also needed to protect depositors and essential services.

For Europe, Donnery says resilient banks are better placed to finance productive investment through good times and bad, but she argues that finance alone cannot substitute for structural reform. She says Europe still needs a more integrated Single Market, stronger conditions for innovation and technology adoption, and fewer barriers to firms expanding across borders.

Our earlier article on Mario Draghi’s warning about the stability-versus-growth trade-off explained how keeping interest rates above growth for too long can worsen debt dynamics and fuel pressure for “fiscal dominance.” We noted his argument that central banks should prioritise inflation control while avoiding unnecessary damage to productive investment, alongside calls for EU market integration and targeted support for innovation to strengthen resilience.

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