Includes some forward-looking elements
The ladder already includes some forward-looking elements derived from minimum risk
management requirements (under the German Banking Act) regarding a bank’s business and
risk strategy. However, the ladder’s effectiveness could be further enhanced by placing
greater emphasis on forward-looking elements (e.g. Risks to the long-term viability of a
bank’s business model or potential weaknesses stemming from its risk appetite and culture)
as well as by expanding quantitative and qualitative triggers.
In particular, the authorities
should build on the triggers found in the German Banking Act and existing guidelines to
facilitate analysis by supervisors on a more forward-looking basis. Such triggers would
reduce the degree of subjectivity when implementing the ladder, and enable greater
consistency of actions across teams or when the need arises to escalate issues. Given the wide
diversity in the nature of institutions and the types of issues and concerns, these triggers
should not be set as “hard” or mechanical thresholds mandating actions to be taken once they
are breached. Rather, they should serve as internal guidance points to prompt further
analysis/escalation by supervisors on a timely basis.
The introduction of such triggers may in
some cases also help to reduce any delays in supervisory responses to bring about corrective
action for banks and increase the willingness to act. Such objective triggers would also be
useful to support less experienced supervisors.
EU Forecast
euf:ba.18.j:103/nws-01