By Toby Sterling, Leigh Thomas and Carmel Crimmins
AMSTERDAM/PARIS/DUBLIN (Reuters) - Across the euro zone, bank compliance officers dream about saying "No" to their new regulator in Frankfurt.
The European Central Bank (ECB) is living up to its promise of being an intrusive and hands-on banking supervisor with a constant demand for data, including minutes of board meetings and regular on-site visits.
At a recent meeting of bank compliance officers, one official wondered out loud what would happen if he simply said "No" to an ECB data request.
"And it was like: ooh, you're going to try out the ‘no'?" a compliance manager at the meeting recalled. "But I don't think anybody is going to actually do it."
The ECB took on oversight of the currency bloc's largest banks late last year after a year-long review of their finances, known as the "Asset Quality Review", which saw banks deploy thousands of staff and submit as many as 307,000 data points each to the authorities in Frankfurt.
The ECB is now following up its balance sheet assessment with an in-depth look at banks' businesses, firing off reams of requests as they try to build databases stretching back 30 years on everything from subsidiaries and business plans to corporate governance practices.
"It is a structural increase in data and reporting. We need to prepare for much more frequent and intense visits, which we never had in the past. It's a new concept for Dutch banks," said Anne Snel-Simmons, head of integrated risk management at Rabobank.
The ECB's evaluation of banks' ability to manage their risk is known as the supervisory review and evaluation process (SREP). Snel-Simmons said one technical element of it, a template requiring 25,000-30,000 data fields to be filled out, fell unannounced into her inbox in January.
What initially appeared to be a one-time exercise is now a quarterly task.
"It takes a lot of people to get it right," she said.
Rabobank has hired more people to deal with the new supervisor but at other banks, compliance staff are working into the evening and over the weekend to deal with the requests.
"They told us that the nightmare that was the Asset Quality Review will become the norm," said one senior French banker.
A spokesman for the ECB's bank supervisory arm said it aimed to keep the burden on banks as low as possible.
"A repeat of last year's asset quality review, which truly was a unique exercise in terms of complexity and level of detail, is not foreseen at this time," he said.
TESTING DECISIONS
The ECB's more intrusive, data-driven approach is a direct result of Europe's financial crisis, in which so-called "light touch" regulation carried out by national authorities played a key role in allowing banks to gorge on risky mortgage products.
The ECB requires the 123 banks it directly supervises to seek its approval for important decisions including nominations to their boards and capital increases.
Such approval requires the agreement of the supervisor's 25-person board, which is based in Frankfurt and is headed by France's Daniele Nouy, including representatives from all 19 euro zone national authorities.
"The disadvantage of the system is that it is very cumbersome and decisions take a long time," said the French banker. "It remains to be seen how the system will react if we find ourselves in a situation that requires professionalism, discretion and an urgent decision from the supervisor."
A spokesman for the ECB's supervisory arm said the board could move swiftly.
"Where decisions have been required at short notice and urgently, the structures have been sufficiently flexible to accommodate such requirements," he said.
The ECB's debut stress test last year was broadly viewed as a success and as banking supervisor it has taken tough decisions this year, including requiring Italian bank Monte dei Paschi (MI:BMPS), the worst performer in the stress tests, to hike its capital requirements. {ID:nL6N0UU1WH]
But the ECB's mettle as banking supervisor has yet to be tested by a crisis or by controversial decisions such as whether banks should set aside capital to cover the risk of default by sovereign governments or end national discretion over what can be used as capital.
"Whether the supervisory board will have collectively what it takes to make the right decisions I think remains to be proven. That applies for both crisis management and the policy space," said Nicolas Veron, a specialist at the Bruegel economic think-tank and the Peterson Institute for International Economics.
LANGUAGE
Each major euro zone bank has a dedicated joint supervisory team (JST) composed of ECB staff and national supervisors, which is head
By Toby Sterling, Leigh Thomas and Carmel Crimmins
AMSTERDAM/PARIS/DUBLIN (Reuters) - Across the euro zone, bank compliance officers dream about saying "No" to their new regulator in Frankfurt.
The European Central Bank (ECB) is living up to its promise of being an intrusive and hands-on banking supervisor with a constant demand for data, including minutes of board meetings and regular on-site visits.
At a recent meeting of bank compliance officers, one official wondered out loud what would happen if he simply said "No" to an ECB data request.
"And it was like: ooh, you're going to try out the ‘no'?" a compliance manager at the meeting recalled. "But I don't think anybody is going to actually do it."
The ECB took on oversight of the currency bloc's largest banks late last year after a year-long review of their finances, known as the "Asset Quality Review", which saw banks deploy thousands of staff and submit as many as 307,000 data points each to the authorities in Frankfurt.
The ECB is now following up its balance sheet assessment with an in-depth look at banks' businesses, firing off reams of requests as they try to build databases stretching back 30 years on everything from subsidiaries and business plans to corporate governance practices.
"It is a structural increase in data and reporting. We need to prepare for much more frequent and intense visits, which we never had in the past. It's a new concept for Dutch banks," said Anne Snel-Simmons, head of integrated risk management at Rabobank.
The ECB's evaluation of banks' ability to manage their risk is known as the supervisory review and evaluation process (SREP). Snel-Simmons said one technical element of it, a template requiring 25,000-30,000 data fields to be filled out, fell unannounced into her inbox in January.
What initially appeared to be a one-time exercise is now a quarterly task.
"It takes a lot of people to get it right," she said.
Rabobank has hired more people to deal with the new supervisor but at other banks, compliance staff are working into the evening and over the weekend to deal with the requests.
"They told us that the nightmare that was the Asset Quality Review will become the norm," said one senior French banker.
A spokesman for the ECB's bank supervisory arm said it aimed to keep the burden on banks as low as possible.
"A repeat of last year's asset quality review, which truly was a unique exercise in terms of complexity and level of detail, is not foreseen at this time," he said.
TESTING DECISIONS
The ECB's more intrusive, data-driven approach is a direct result of Europe's financial crisis, in which so-called "light touch" regulation carried out by national authorities played a key role in allowing banks to gorge on risky mortgage products.
The ECB requires the 123 banks it directly supervises to seek its approval for important decisions including nominations to their boards and capital increases.
Such approval requires the agreement of the supervisor's 25-person board, which is based in Frankfurt and is headed by France's Daniele Nouy, including representatives from all 19 euro zone national authorities.
"The disadvantage of the system is that it is very cumbersome and decisions take a long time," said the French banker. "It remains to be seen how the system will react if we find ourselves in a situation that requires professionalism, discretion and an urgent decision from the supervisor."
A spokesman for the ECB's supervisory arm said the board could move swiftly.
"Where decisions have been required at short notice and urgently, the structures have been sufficiently flexible to accommodate such requirements," he said.
The ECB's debut stress test last year was broadly viewed as a success and as banking supervisor it has taken tough decisions this year, including requiring Italian bank Monte dei Paschi (MI:BMPS), the worst performer in the stress tests, to hike its capital requirements. {ID:nL6N0UU1WH]
But the ECB's mettle as banking supervisor has yet to be tested by a crisis or by controversial decisions such as whether banks should set aside capital to cover the risk of default by sovereign governments or end national discretion over what can be used as capital.
"Whether the supervisory board will have collectively what it takes to make the right decisions I think remains to be proven. That applies for both crisis management and the policy space," said Nicolas Veron, a specialist at the Bruegel economic think-tank and the Peterson Institute for International Economics.
LANGUAGE
Each major euro zone bank has a dedicated joint supervisory team (JST) composed of ECB staff and national supervisors, which is headed up by a coordinator who is not from the country where the bank is located.
The coordinator has the final say in making proposals for decisions to the supervisory board.
The JSTs conduct a lot of on-site visits and have started attending board meetings as part of a review of governance structures.
"We have meetings and contacts and mail almost every day with the JST, either with the Frankfurt team or with the Spanish team. We think this is the only way to get a real picture of a bank like BBVA (MADRID:BBVA) with so many banks abroad and with a different structure," Eduardo Avila Zaragoza, head of the Global Supervisor Relations team at Spanish bank BBVA, told a banking conference earlier this month.
Most banks have chosen to communicate with the ECB in English. Zaragoza said BBVA made the call in September 2014.
"The letter for the decision for the language was in Spanish, but it was a very funny and weird Spanish. We wouldn't understand very well the Spanish they were using, so we chose English."
For smaller lenders, the decision to communicate in English has made life more difficult for some of their executives, who have started taking English lessons to improve their vocabulary.
Translators, unsurprisingly, are in big demand and feeling the pressure.
"We're expecting a mountain of work but have no visibility. We haven't got a clue how much to expect and when it will come," a translator at one euro zone central bank said.