Naturally, such processes are the responsibility of banks’ owners, while our role, as banking supervisors, is to analyse any merger plans submitted to us from the standpoint of business viability. This entails assessing the solvency of the resulting institution, analysing the impact on overall financial stability and overseeing the execution of the merger to ensure that the potential synergies are indeed harnessed. In this setting, transnational European mergers would be particularly positive. They would facilitate further deepening of the banking union and provide greater potential for diversification. They would also help establish broader customer bases, so that the cost of the investment in technology could be more widely distributed, although the immediate impact on cost-cutting would be lower. In this respect, I wish to highlight the transparency exercise undertaken by the ECB in submitting its Guide on the supervisory approach to consolidation in the banking sector to public consultation prior to its approval. This Guide aims precisely to provide the market with greater forward visibility on supervisory actions, to help banks design merger plans that are sound from a prudential standpoint and ensure that the resulting institution has a business plan that, when executed correctly, will add value. However, institutions should also seek to enhance their efficiency by improving the use they make of the information they hold. This requires significant investment in digitalisation and also the incorporation of new data processing technologies that will allow them to change their business model while controlling their risk profile.

The idea was to reduce their risk-taking by increasing their “skin in the game” and providing them with greater loss-absorbing capacity. The releasable macroprudential buffers I referred to earlier were also introduced. The second stage of the Basel reforms focused on a matter brought to light during the first phase: the calculation of risk-weighted assets (the denominator of the capital requirements under the Basel standards) and the need to standardise their treatment among institutions. Again, the aim here was to reinforce the credibility of banks’ prudential ratios and appropriate measurement of the risks assumed. A crucial aspect of this reform is the socalled “output floor”, which limits the benefits that banks can derive using internal models to calculate minimum capital requirements. 7  The (pre-pandemic) impact analyses of the reform reveal that banks’ capital requirements would increase in some jurisdictions, although they would also be reduced by certain elements. Some such elements, which were to be included in the European transposition of Basel III, have already been implemented through the Capital Requirements Regulation (CRR) quick fix, introduced in late June. In particular, the impact of the revised SME and infrastructure supporting factors is reflected in the recent behaviour of solvency ratios. Investments in intangible assets relating to software will cease to be deducted from capital at a later date. The objectives of the Basel III reform, which consist of balancing simplicity, comparability and risk sensitivity, remain wholly in place.