This paper studies the role of banking supervision in anticipating, monitoring, and disciplining failing banks. We document that supervisors anticipate most bank failures with a high degree of accuracy. Supervisors play an important role in requiring troubled banks to recognize losses, taking...

This paper develops an early warning system for predicting distress for large European banks. Using a novel definition of distress derived from banks' headroom above regulatory requirements, we investigate the performance of three machine learning techniques against the traditional logistic...

Do climate stress tests affect bank credit supply to brown firms? Using a difference-in-differences approach and detailed data on individual bank loans in the euro area, this paper provides novel evidence on the effects of the ECB's 2022 climate risk stress test. Despite no capital implications...

In the last decades, during the unfolding of momentous events, we saw the growing awareness of the need for a transition to a sustainable economy. The radical economic and social change will require the mobilization of colossal resources, and hence the alignment of the financial system to this...

This paper provides a first empirical analysis of the impact of the European Central Bank's (ECB's) climate-risk-related supervisory efforts on (i) climate risk exposure and related risk management of banks; and (ii) on the induced shifts in banks' portfolio choices with regard to additional...

We ask if bank supervisors’ efforts to combat climate change affect banks' lending and their borrowers’ transition to the carbon-neutral economy. Combining information from the French supervisory agency’s climate pilot exercise with borrowers' emission data, we first show that banks that...

We argue that the rapid asset growth of nonbank financial intermediaries (NBFIs) relative to banks is the outcome of transformations of risks between banks and NBFIs that increase the interconnectedness of the two sectors. These transformations are consistent with avoiding tighter, post-GFC bank...

This paper applies the Growth-at-Risk (GaR) framework to assess downside risks to euro area GDP growth, and it examines its usefulness for stress testing. Supervisory stress-test scenarios are often criticized for being either too mild or implausibly severe, raising questions about calibration....

This research aims to find the most accurate model for predicting bankruptcy in the Indonesian banking industry. The data used are secondary data in the form of financial reports from 2018 to 2022. The methodology includes hypothesis testing using normality, homogeneity, and one-way ANOVA tests....

This paper studies the impact of banks' dividend restrictions on the behavior of their institutional investors. Using an identification strategy that relies on the within investor variation and a difference in difference setup, I find that funds permanently decrease their ownership shares at...

We show that around one third of executive directors on the boards of national supervisory authorities (NSA) in European banking have an employment history in the financial industry. The appointment of executives without a finance background associates with negative valuation effects....

Banking supervisors worldwide recognise the pressing need to harness frontier technologies such as artificial intelligence (AI), particularly machine learning (ML), to enhance their efficiency and analytical capabilities. The European Central Bank (ECB) has similarly acknowledged the...

This paper evaluates the impact of the March 2020 European Central Bank recommendation that banks do not pay dividends or buy back shares on their market values. It documents a causal negative impact on bank share prices of around 7% during the two weeks following its announcement. The...

This paper captures advances in prudential regulation and supervision for challenger banks and fintech in the UK. It presents a critical analysis of the prudential supervisory approaches towards fintech. The focus is placed on fast-growing firms (FGFs), building on the review performed by the...

This paper provides an overview of recent analytical work1 conducted, under their own aegis, by experts from various European authorities and institutions in the field of crypto-asset monitoring. Currently, risks stemming from crypto-assets and the potential implications for central banking...

Physical climate risks can have a large regional impact, which can influence mortgage loans' credit risk and should be priced by the lenders. Motivated by the relevance of climate change for financial intermediaries, our paper aims at analysing if physical climate risks are being reflected in...

This paper develops an early warning system for predicting distress for large European banks. Using a novel definition of distress derived from banks' headroom above regulatory requirements, we investigate the performance of three machine learning techniques against the traditional logistic...

External ratings (agency ratings) and internal ratings were already in use before Basel II, as powerful management tools. Basel II "adopts" them (the former in the Standard approach, the latter in the IRB approaches) in a productive way: internal ratings represent the final summary of the...

This study quantifies the impact of geopolitical risk on euro area banks using the 2025 EU-wide stress test, the first to include an explicit geopolitical scenario. Comparing outcomes with earlier stress tests, we find that geopolitical shocks measurably erode capital ratios, with smaller and...

This paper argues that the European macroprudential regime has evolved into a complex architecture of buffers, national discretion, and instrument-specific controls due to persistent doubts regarding the credibility of the EU bank resolution regime. Moreover, macroprudential controls are...

This first climate transition risk stress test for the Albanian banking sector assesses the macroeconomic and financial sector implications of Albania's shift to a low-carbon economy under different climate policy scenarios. It builds upon earlier exposure analyses conducted for the Albanian...

This paper examines the benefits and implementation challenges of the newly revised Basel Core Principles (BCPs) for effective banking supervision. It outlines the rationale for the 2024 reform led by the Basel Committee on Banking Supervision (BCBS), highlights key enhancements, and provides...

The Committee has revised its principles for the management of credit risk (Credit Risk Principles). These principles provide guidelines for banking supervisory authorities to evaluate banks' credit risk management processes in four key areas: (i) establishing a suitable credit risk environment;...

Monetary and Capital Markets (MCM) department delivered a hybrid technical assistance (TA) mission to assist the Bangko Sentral ng Pilipinas (BSP) in developing a supervisory framework for operational resilience. An earlier mission in 2022 assisted BSP to develop a regulatory framework for...

This technical note focuses on regulation and supervision of less significant institutions as part of the Slovak Republic's Financial Sector Assessment Program. Národná banka Slovenska's (NBS) supervisory approach focuses on Less Significant Institution (LSI) risks and vulnerabilities however...

Supporting the Authority´s objectives on development of risk-based supervision of the banking sector, this technical assistance for the Bank of Lao P.D.R., conducted in Vientiane from June 10-14, 2024, provided advice on improvement of the aspects of risk-based supervision, including revising...