Is the sector in better shape than it was five years ago? Yes. European banks have become considerably more resilient as they have increased their capital stock and strengthened their governance and risk controls. While preparing for the comprehensive assessment, they have also consolidated their balance sheets by up to € billion in recent months, selling off assets or issuing new capital. It is therefore fair to say that enormous progress has been made. But nevertheless, there is no reason to be lenient. Like an athlete who has to train daily to keep in shape, banks – which operate in a very competitive environment – must permanently work on their business models and strategies to take into account macroeconomic conditions, such as very low interest rates. They need to comply with many new regulatory restrictions, some of them still to come, some of them in transitional periods and not yet fully applicable. Until now supervision was conducted by the national authorities, such as the ACPR (the authority for prudential supervision and resolution) in France. Did that not suffice? Banks are highly interconnected. An independent supervisor at the European level gives rise to a number of advantages. First, it reduces the risk of regulatory and supervisory arbitrage as a European supervisor can create a level playing field. Second, it provides a better overview of the activities of large banks, while allowing for a cross-country comparison of their practices and control frameworks with those of other banks.
As national supervisors will support us in our forward-looking critical assessment, we take the best of both worlds: the additional expertise of national authorities combined with an independent, strong horizontal view when it comes to the centralised decision-making of the Single Supervisory Mechanism at the European level. BIS central bankers’ speeches  1  How will you work with the ACPR? Like the other national supervisors, the ACPR will be actively involved, together with their counterparts at the ECB, in the supervision of the significant French banks. Our French colleagues will familiarise us with the characteristics specific to the French market and legal system. They will inform us of national developments that might influence banks’ activities, such as tax laws or laws on loans to enterprises. This expertise, combined with that of the ECB, will put us in the best position to assess banks’ risk profile and to judge whether the differences in banking practices between countries are justified or not. The SSM will supervise the 120 largest European banks, but the other 4,000 will remain under national supervision. Is this not a flaw in the system? The ECB will supervise the European banking system as a whole, the significant banks with a market share of 82% of total banking assets directly and the less significant ones indirectly. We will set the key principles according to which all of the European banks should be supervised, also at the national level. And we will check that these principles are being followed.