welcome remarks remarks by luis de guindos, vice - president of the ecb, at the ecb forum on banking supervision, frankfurt am main, 6 november 2019 welcome to the third ecb forum on banking supervision. november 2014, exactly five years ago, was certainly a crossroads for the euro area banking sector. the creation of the single supervisory mechanism conferred both micro - and macroprudential responsibilities on the ecb. i will therefore focus on our achievements and challenges in coordinating both functions. in particular, i will touch upon our joint effort in carrying out banking sector stress tests and our interaction in the conduct of prudential policy in the current environment. micro - and macroprudential interaction and coordination looking back, the financial crisis was a wakeup call for all of us to strengthen financial regulation and banking supervision. for europe, it especially implied harmonising supervision across member states to protect it from national agendas. but the crisis also showed that supervising individual institutions in isolation cannot safeguard the stability of the system as a whole. macroprudential policy has to complement supervisory scrutiny by accounting for system - wide macro - financial feedback loops. thanks to this system - wide perspective, macroprudential policy can address structural vulnerabilities and act countercyclically – tightening requirements when we see excessive risk - taking, and loosening them to avoid a credit crunch after risks have materialised. embedding both micro - and macroprudential responsibilities within the ecb ensures that our actions are based on consistent information and are coordinated for the banking union as a whole. while retaining ultimate responsibility, the ecb carries out its supervisory tasks within the single supervisory mechanism, comprising the ecb and national competent authorities. in turn, for macroprudential policy national authorities remain the first line of defence to promptly counter emerging systemic risks. but the ecb can set higher macroprudential requirements than those set by national authorities, if necessary. national and european bodies complement each other and have jointly strengthened our banking and financial system. exercising the micro - and macroprudential function requires close coordination and cooperation. one of the most notable examples is stress - testing. the biennial eu - wide stress test exercises are microprudential in nature and based on a constrained bottom - up approach. they aim to assess the resilience of the largest eu credit institutions to adverse economic and financial circumstances. the stress test exercises are important inputs for the ecb ’ s supervisory review and evaluation process

we see that other authorities, for example in the united kingdom and the united states, are having similar discussions. concluding remarks let me conclude. with the establishment of the single supervisory mechanism, the ecb was given microand macroprudential responsibilities and powers. this set - up aims to ensure that the two policies are well coordinated. at the same time, the current macro - financial environment has become more challenging. the bleaker and more uncertain outlook can create strains for bank profitability. challenges also arise for the non - bank sector with potential spillovers to the banking sector. so for us to ensure the stability of the banking sector, we also need to deepen our understanding of the role of non - bank institutions in the financial system and monitor the risks associated with their activities. continuing to provide a consistent policy response in the current macro - financial environment requires the countercyclical role of macroprudential policy to be strengthened by ensuring that releasable buffers are available. ultimately, the microprudential and macroprudential functions will need to rely on each other to provide successful prudential policies that ensure financial stability and support financial intermediation. [ 1 ] see constancio, v. ( ed. ) et al. ( 2019 ), “ macroprudential policy at the ecb : institutional framework, strategy, analytical tools and policies ”, occasional paper series, no 227, european central bank. [ 2 ] see the european commission ’ s press release on “ progress in risk reduction in the banking union and calls for faster progress on capital markets union ahead of eu leaders ’ meetings ”. [ 3 ] under this approach, banks generate their stress test projections using their own models. these projections are based on a macrofinancial scenario that is the same for all banks and are subject to a predefined methodology prescribed by the european banking authority. [ 4 ] ecb banking supervision uses both the qualitative results ( quality and timeliness of banks ’ submissions ) and the quantitative results ( capital depletion and banks ’ resilience under the adverse scenario ) as inputs for the srep, to inform the setting of pillar 2 capital requirements and pillar 2 capital guidance, respectively. the ecb conducts the stress test both for those banks which are part of the exercise coordinated by the european banking authority and for the rest of the significant institutions which are directly supervised by the ecb. [ 5 ] see, for example, section 3.