Enhancing Financial Resilience: The European Supervisory Examination Programme for 2024

The ESEP aims to drive convergence in supervisory practices and ensure the identification, assessment, and management of risks within the EU banking sector.The ESEP is an integral part of the EBA's supervisory convergence toolkit, mandated to deliver convergence in supervisory practices across the EU. It provides a set of priorities for competent authorities (CAs) to implement, fostering a coordinated approach to risk management and resilience.

Key Topics for 2024:

Liquidity and Funding Risk: 

• EU/EEA banks face challenges in maintaining liquidity amid recent global financial events.
• Supervisors emphasize the need for proactive management of liquidity and market-based funding.
• Assessment includes short- and medium-term liquidity risk, funding profile, and potential risks from wholesale/retail counterparties.

Interest Rate Risk and Hedging:

• With a shift from ultra-low to increased interest rates, banks must ensure efficient interest rate risk management.
• Supervisors focus on organizational frameworks, asset-liability management, and stress testing to assess the impact of rising interest rates on Net Interest Income (NII) and Economic Value of Equity (EVE).

Recovery Operationalization:

• Recent market events underscore the importance of crisis preparedness and the implementation of recovery plans.
• Supervisors stress the need for credible and feasible recovery options, realistic scenarios, and a focus on liquidity recovery capacity.
• Adequate testing of recovery plans, including communication strategies, is highlighted.

Further Considerations:

Sustainable Finance and ESG:

• Sustainable finance remains a focal point, aligning with the EBA's sustainable finance roadmap.
• Although not a key topic for 2024, supervisors continue to monitor ESG risks and integrate them into their examination programs.

Digital Operational Resilience:

• The Digital Operational Resilience Act (DORA) takes center stage in enhancing operational resilience against cyber risks and data security.
• Supervisors emphasize ongoing review of ICT risks and operational resilience due to their potential prudential impact.

Risk Data Aggregation and Digitalization: 

• Banks are urged to accelerate efforts in risk data aggregation and digitalization strategies.
• The impact of digitalization on business models and risk profiles should be thoroughly investigated.