Yves Mersch: Appointment hearing as Vice-Chair of the ECB
Supervisory Board
Appointment hearing of Mr Yves Mersch, Member of the Executive Board of the European Central
Bank, at the Committee on Economic and Monetary Affairs of the European Parliament,
Brussels, 4 September 2019.
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Following my nomination by the ECB's Governing Council as candidate for the position of
ViceChair of the ECB's Supervisory Board, I am grateful for this opportunity to outline the key
principles that I intend to bring to the role.
I have spent more than 20 years of my career dealing with microprudential supervision in various
roles, first at Luxembourg's Monetary Institute and Finance Ministry, and then as Governor of its
Central Bank. During that time I helped to develop the template for modern banking supervision in
my country - but I also witnessed the challenges national supervisors can face in a monetary
union. This perspective proved vital when I co-led the internal preparations within the ECB for the
creation of European banking supervision.
Today, the Single Supervisory Mechanism (SSM) is well established as the single banking
supervisor in the euro area. If confirmed as Vice-Chair of the ECB's Supervisory Board, I am
determined to uphold and strengthen this achievement.
In doing so, my approach to supervision will be based on three main pillars.
The first pillar is to transition to a more forward-looking supervision.
European banking supervision has been instrumental in tackling the legacies of the crisis: since
2014 stocks of non-performing loans, or NPLs, have declined by almost 50% and bank capital
has increased significantly. But we also have to look to the future. In an environment of weak
growth, banks cannot afford large inflows of new NPLs while clinging to outdated business
models. Supervision must ensure that sound underwriting standards and adequate provisions
are in place, that changing business models are sustainable and that upcoming risks are
addressed.
The second pillar is to further increase the transparency of supervision.
Prudential supervision requires a high level of democratic accountability because its measures
might have an impact on (national) taxpayers' money. So the way banks are supervised should
be clear and predictable. Increased transparency also supports consistency when comparing
banks' compliance with applicable supervisory principles and practices. It thereby ensures a level
playing field and that all supervised institutions are treated equally.
Moreover, transparent supervisory requirements help to understand banks' risks, and anticipate
supervisory actions. This in turn would strengthen market discipline.
But we need to strike a balance. Full disclosure is neither possible nor desirable. Sensitive
information must remain confidential, as it could endanger financial stability if revealed.
The third pillar is to ensure the legality of supervisory action.
There are two elements to this. The first is that there are concerns that tensions could arise from
having monetary policy and supervision under one roof. In my view, the clear delineation of
mandates in the legal framework and the functional separation of the policy areas mitigate such
risks, and I pledge to ensure that the separation principle is fully respected. It's worth
remembering that a system-wide perspective is the key advantage of European banking
supervision, as it allows us to identify and react to euro area-wide linkages and spillovers.
Applying national laws, on the other hand, can lead to a fragmented implementation of
supervisory rules.
The second element is that we have to act within the boundaries of our mandate and respect the
law at all times. Any supervisory action must remain bank-specific and be taken within the limits
of relevant European legislation, which is defined by the co-legislators, i.e. the European
Parliament and the Council, with further specifications from the European Banking Authority.
I look forward to answering your questions.