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Frank Elderson, Vice-Chair of the ECB Supervisory Board, told a Basel committee conference in Bali that European supervisors are deliberately accepting more residual risk under a risk tolerance framework while simplifying supervision. He reported concrete results, including cutting securitisation approval times from three months to about seven days and reducing stress testing data points by around 55%.
Frank Elderson, Vice-Chair of the European Central Bank’s Supervisory Board, said European banking supervisors are deliberately increasing their risk tolerance and simplifying supervisory processes to stay effective in a more complex and volatile risk environment. Speaking on a panel on “Navigating the new financial landscape” at the BCBS international conference of banking supervisors in Bali on 30 September 2026, Elderson argued that trying to monitor every risk in every bank every year is no longer workable.
Elderson said the ECB’s supervisory approach now rests on three mutually reinforcing pillars: sharper risk prioritisation, simpler and more efficient supervision, and timely remediation. He stressed that the challenge for supervisors is not simply that there are more risks, but that the risk landscape has become more uncertain, interconnected and volatile, driven by geopolitical fragmentation, technological change, volatile commodity prices, inflation, demographic shifts, links with non-bank financial institutions, and climate and nature-related risks.
A central element of the approach is the ECB’s risk tolerance framework (RTF), which Elderson said clarifies how much residual supervisory risk can be accepted when certain areas are reviewed less intensively or deferred. He was explicit that de-prioritisation is an active supervisory judgement, not a passive outcome or a resource-driven omission. In practice, lower-priority risk areas at individual banks are not subject to the same intensive scrutiny every year.
On efficiency, Elderson cited concrete results from the ECB’s Next Level Supervision initiative. The ECB has reviewed more than 100 supervisory guidance publications, discontinuing around 40 and revising others. Processing times for standardised, less risky securitisation approvals have fallen from three months to an average of around seven days, and stress testing data points have been cut by around 55%. Turnaround times in fit-and-proper assessments have also been shortened through digitalisation and AI-enabled tools.
Implications for European Banks and Supervisors
The speech signals a continued shift in European banking supervision from exhaustive, checklist-style oversight toward materiality-based supervision. For banks, this could mean fewer information requests, faster approvals for simpler transactions and less prescriptive guidance — but also greater expectations that they take responsibility for applying rules based on materiality rather than seeking constant reassurance from supervisors.
Elderson said a less risk-averse and more agile environment is a shared responsibility, citing a recent European Commission report on banking competitiveness. He called on banks to refrain from continuous demands for guidance in search of ever-higher legal certainty. He also argued that a simpler framework places greater weight on supervisory judgement, because regulation alone cannot capture every emerging risk or idiosyncratic business model without producing an ever-more complex rulebook and new opportunities for regulatory arbitrage.
The approach matters beyond Europe: the panel audience of international banking supervisors is grappling with the same question of how to remain effective as risk landscapes grow more complex worldwide.
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Lessons From the 2023 Banking Turmoil
Elderson anchored the approach in lessons from past crises, particularly the 2023 banking turmoil, which he said showed that banks can meet all formal capital and liquidity requirements while weaknesses in governance, risk culture or business models accumulate beneath the surface. This is why ECB supervision focuses on material risks wherever they arise — whether to capital or liquidity, governance, operational resilience, or structural risk drivers such as climate, nature-related and geopolitical risks.
The speech also fits into a broader European policy debate. The European Commission’s recent report on banking competitiveness, which Elderson referenced, has pushed for a less risk-averse supervisory environment to support the competitiveness of the EU banking sector. The ECB’s Next Level Supervision initiative, launched to streamline supervisory processes end to end, forms the operational side of this agenda.
“The challenge facing supervisors today is not simply that there are more risks. Rather, the risk landscape is increasingly uncertain, interconnected and volatile.”
— Frank Elderson, Vice-Chair of the ECB Supervisory Board
Open Questions on Speed and Impact
Elderson himself cautioned that the full effects of the new approach will take time to materialise, saying the impact is only beginning to emerge. It is not yet clear how the increased supervisory risk tolerance will play out at individual banks, or how supervisors and banks will handle cases where deferred or less intensive reviews later reveal problems.
The speech text released by the ECB appears truncated in places — the section on fit-and-proper assessments ends mid-sentence — so further detail on digitalisation results, and on the third pillar of timely remediation, may follow in the full published version or subsequent communications. The source text does not specify which 40 discontinued guidance publications were affected or provide a timeline for the deeper reviews still under way.
How the Framework Will Be Rolled Out
The ECB is expected to continue implementing the risk tolerance framework across its supervisory reviews, with the stated aim of concentrating attention on the highest-priority risks at each bank. Several supervisory guidance publications remain under in-depth review, and further results from the Next Level Supervision initiative — including additional streamlining of data requests and approval processes — are likely to be announced.
Elderson indicated that the cultural shift toward greater risk appetite depends on all stakeholders, including banks, accepting more responsibility for materiality-based compliance. Watch for future ECB Supervisory Board publications, the next annual supervisory priorities, and follow-up from the European Commission’s competitiveness agenda to gauge how far this approach is embraced in practice.
Key Questions
What is the ECB’s risk tolerance framework (RTF)?
According to Elderson, the RTF clarifies how much residual supervisory risk can be accepted when certain risk areas at a bank are reviewed less intensively or deferred. It makes de-prioritisation an explicit, documented supervisory judgement rather than an informal resource-driven choice.
Does more supervisory risk appetite mean weaker oversight?
Elderson said no, arguing the goal is to deliver the same level of safety and soundness with a simpler framework, freeing supervisory capacity to focus on material risks. Critics’ views on this point are not addressed in the speech itself.
What concrete results has the ECB reported so far?
Per the speech: around 40 of more than 100 reviewed guidance publications discontinued; securitisation approval times for standardised, less risky transactions cut from three months to about seven days on average; stress testing data points reduced by around 55%; and faster fit-and-proper assessments through digitalisation and AI tools.
What role are banks expected to play?
Elderson said banks must take more responsibility for applying the law based on materiality and refrain from continuously demanding guidance in pursuit of ever-higher legal certainty, calling the cultural shift a shared responsibility highlighted by the European Commission.
Where and when did Elderson deliver these remarks?
At the BCBS international conference of banking supervisors in Bali on 30 September 2026, during a panel on “Navigating the new financial landscape”.
Source: primary
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