This is precisely the spirit of "Pillar 2" of the Basel framework. Supervision can and must be responsive, intrusive - including with on-site inspections -, exercised by highly qualified professionals, and applied forcefully. This is not wishful thinking: we have been practising it for decades at the ACPR, and for years now in the SSM. I would like to pay tribute to the ACPR's expertise and to the acclaimed work of its 1,050 women and men: it is indeed a certain "French-style supervision" model that inspired European-style supervision, under Danièle Nouy, the first Chair of the SSM, and which is still in place today under Andrea Enria. This active supervision is one of the greatest success stories of our European Banking Union. The SSM demonstrates the benefits of bringing all players under one main authority only, rather than under regional supervisors, with clearly defined responsibilities and coordination. This also allows for comparisons and for thematic on-site missions to be carried out. Page 6 of 9 Furthermore, our active supervision demonstrates the strong value of regular stress tests, including on interest rate risks, which are also applied to smaller institutions. The European Banking Authority (EBA) conducts an EU-wide bank stress test every two years, taking into account the latest macro-financial developments: in 2023, the stress test scenarios are typically based on a sharp rise in short and long-term interest rates.
This is a reflection of the unusual and difficult economic conjuncture that we have been going through, combined with the challenge of determining the scale and nature of, for instance, loan forbearance. This is particularly evident in areas like commercial property lending where there is a hump of loan refinancing to come and a quite sharp tiering of performance among assets. Second, the euro area, and the possible impact of disorderly break-up, should that happen (and in saying this, I offer no view on whether it will happen), could have a sizeable impact on many banks. But here the FPC faces another very difficult judgement, namely what scale of so-called tail risk – the losses from low probability but high impact events – do we wish to see covered in the capital held now by banks? In other words, how much insurance should come from capital providers? The broad answer is a lot, but that does not tell us how much,  BIS central bankers’ speeches  3  and in the limit there are utterly catastrophic risks for which it is not sensible to hold capital as the answer. Third, when we look at the low market value of some banks relative to their book value, how much of this should we attribute to lending margins being considerably lower than they were expected to be? Net interest margins are squeezed in the current environment.