ECB plans lighter follow-up for minor bank weaknesses

European banking supervisors planned to begin reviewing accumulated supervisory measures in mid-October, reducing follow-up on minor weaknesses while maintaining pressure on banks to resolve serious problems, Frank Elderson said in a contribution published on 6 October 2026.

The European Central Bank’s publication, “Effective supervision through timely remediation”, sets out a shift towards allocating supervisory attention according to the seriousness of a bank’s weaknesses. Elderson said simplification should make oversight more effective, rather than weaken standards. The publication announced the planned review; it did not establish that the exercise had subsequently begun.

The approach combines less paperwork for lower-impact issues with stronger intervention where banks fail to make meaningful progress on material risks. Supervisors would concentrate on lasting improvements in governance, risk management and internal controls, rather than treating the closure of individual findings as an end in itself.

A large backlog, with different levels of risk

Elderson put the stock of outstanding supervisory measures across significant banks at about 12,000 at the end of 2025, averaging roughly 100 per bank. These ranged from very low to very high severity. He questioned whether every underlying finding remained equally relevant, or whether some reflected priorities that had since become less important.

A tiered approach introduced in 2025 already allows banks to close low-severity findings themselves, retaining evidence for possible future supervisory review. For these findings, banks can confirm that sufficient corrective action has been taken without submitting additional documentation.

Elderson reported that supervisors closed 1,200 more measures than they created in 2025, and that the outstanding stock had fallen by a further 600 in 2026 by the time of publication. These are different measures of activity: the first is the balance between closures and new measures during a year; the second is a reported reduction in the outstanding stock. The contribution also described the end-2025 stock as having increased, but did not reconcile that description with the net closures reported for the same year.

What changes for lower-severity findings

The planned review will consider the severity and prudential relevance of existing findings, progress on remediation, how long issues have remained outstanding and whether further supervisory intervention is likely to be necessary. Banks are to receive information on how the exercise affects their own outstanding findings and measures.

The least severe findings, classified as F1, will in future be communicated as supervisory observations rather than automatically generating corresponding measures. F2 findings and measures will receive more proportionate follow-up and may be closed where additional supervisory assessment is no longer warranted.

For low-severity F1 and F2 findings concerning internal models, mandatory verification of remediation by internal audit or internal validation will also be removed. That change concerns a specific verification requirement; it does not remove the expectation that banks correct weaknesses.

Elderson described the exercise as a continuing change in how supervisors identify and pursue problems, not merely a one-time reduction of the backlog.

Stronger intervention when serious problems persist

For material weaknesses that remain unresolved, Elderson said supervisors are making greater use of an escalation framework. Available instruments include capital requirements, directions to improve risk management, restrictions on business activities and periodic penalty payments.

The choice of instrument should depend on the significance of the weakness, how long it has persisted and the bank’s responsiveness. Elderson did not identify an individual bank facing enforcement action in this contribution.

Supervisors should establish a corrective path in advance, with a final deadline and suitable interim milestones. They must also assess whether the bank has fixed the underlying cause, rather than simply completed enough individual tasks to close a finding.

Elderson placed the changes against risks including geopolitical fragmentation, elevated asset valuations, AI-enabled cyberattacks, connections between banks and non-bank financial institutions, and climate- and nature-related exposures. His central argument was that reducing low-value supervisory work should free capacity to address the weaknesses most consequential for banks’ safety.

Source

Frank Elderson, “Effective supervision through timely remediation”, published 6 October 2026. The contribution discusses reforms introduced in 2025, the outstanding stock at end-2025, developments in 2026 up to publication and a review planned for mid-October. Original publication: https://www.ecb.europa.eu/press/key/date/2026/html/ecb.sp261006_1~0df91e4e44.en.html