Why is the ECB so much murkier than the Fed?

News and opinion on finance

Two issues stood out during Andrea Enria’s hearing at the European Parliament in November, when he successfully defended his candidacy to lead the eurozone’s bank supervisor.

Andrea Enria, SSM

One was the need for stronger action to level Europe’s non-performing loan (NPL) mountain – no surprises there. But Enria seemed just as passionate, too, about the need for greater transparency at what is perhaps the world’s most powerful bank supervisor.

This ambition for greater transparency is something the ECB officially confirmed in February, in a statement on Enria’s priorities in his new job.

Enria is only the second head of the ECB’s Single Supervisory Mechanism (SSM), set up in 2014. Strengthening the institution is therefore still the biggest task. Making its workings and data less opaque is vital.

However, this will be hard, not just due to the sheer complexity of modern bank regulation, but also due to the ECB and SSM’s own governance: dominated by national authorities, with primarily national rather than European interests.


During the previous seven years, under Enria’s leadership, the European Banking Authority (EBA), the EU-wide regulator, has improved its transparency.

The EBA now publishes standardized bank-specific metrics, such as cost/income ratios and NPL coverage, on around 130 banks, updated annually. It also reveals the bank-specific findings of its biennial stress test.

By contrast, the SSM does not publish bank-specific data, even in its annual stress tests. The SSM’s stress-test findings help it determine bank-specific minimum capital requirements and guidance in its yearly supervisory review and evaluation process (SREP). But the link is hazy and disjointed. It does not publish these two sets of figures, either.

Under the SSM, the eurozone’s biggest listed banks have deemed it necessary to publish their SREP capital requirement – which is good – although few publish the SREP guidance.

Unlike the requirements, there is not supposed to be a direct connection between SREP guidance and the regulatory maximum profit that banks can distribute though dividends, bonuses and subordinated-debt coupons.

Yet one investor asks whether the guidance could be why some banks are shifting to scrip dividends, notably Santander and Société Générale this year. If so, the guidance would be important, at least to equity investors.

Enria said in November that publishing both SREP numbers, though controversial, is vital to Europe’s new bank bail-in framework. However, his opinion may not be enough, as the heads of national supervisors dominate the supervisory board at the SSM, as at the EBA.

“I strongly favour quite extensive disclosure of supervisory outcomes, also of the results of the stress tests,” he told the European Parliament in November. “I know that this position is not always shared in the supervisory community, and I found myself sometimes in a minority on my own board at the EBA in this area.”

Federal Reserve

Across the Atlantic, the Federal Reserve publishes bank-specific details of its annual stress tests and capital reviews.

The US public, furthermore, has online access to detailed data on 8,200 banks: updated quarterly and standardized at federal level. The 2010 Dodd-Frank Act further set up the Office of Financial Research, to improve the collection and analysis of this data.

In the US, for whatever reason, there seems less debate about the importance of publishing such data to the banking system’s good functioning.

Now the SSM is harmonizing supervisory definitions and practices across the eurozone. That should make it easier to publish its bank-specific findings, and perhaps to open up its own decision-making, and help dispel suspicions that it treats southern European banks unfairly.

Better transparency might even help quell northern European concerns about supervisory forbearance and, at least in time, about common deposit insurance – the lack of which is a fundamental weakness to the ECB, unlike the Fed.

Nicolas Véron,
Peterson Institute

Enria might succeed in publishing bank-specific details of the stress-testing process, and SREP figures. However, according to a 2016 Peterson Institute report, most national supervisors in Europe do not publish bank-specific data as a matter of course, and some counties – notably France – moved to formalize the confidentiality of that data after 2014.

Maintaining banks’ accounting privacy is hard to defend on the basis of trade secrets, especially given the reality of contingent public liabilities. The argument that greater transparency is pro-cyclical, and exacerbates financial instability, is more convincing, but a non-starter, as it would help avoid a crisis in the first place: there will always be a bank in trouble somewhere in Europe.

One unacknowledged reason why some national authorities defend banks’ privacy might be that they still view their big banks as national champions to defend, with those banks’ size still a source of national pride, however weak they may be in practice.

Witness the rejoicing in Paris’ financial sector at the choice to move the EBA there from London: it seemed to some to reflect the French financial sector’s size.

There are better reasons to keep the supervisor’s methodology private, to avoid quibbling over the results. National differences, especially in managing retail mortgage risks, must inevitably make these calculations an art. Publishing more exact rules could also make it easier to game them with financial engineering, says Peterson fellow Nicolas Véron.

Yet Enria could struggle to argue for greater disclosures of bank data, while defending the opacity of the SSM’s methods.

The single supervisor’s cloak-and-dagger approach to setting NPL coverage deadlines, even after uproar from the European Parliament, shows how transparency is important for the ECB’s accountability, too.

NOTE: If you want to trade at forex professionally – trade with the help of our robot forex developed by our programmers.
Signal2forex review