Like an unwanted corporate Christmas card, banks across Europe each receive a letter from Frankfurt at the end of every year. Rather than sending it straight to the recycling bin, however, this is one that even the chief executive will need to open and read, and not normally with any joy. It contains the results of the dreaded Supervisory Review and Evaluation Process, known as the SREP letter, from the single supervisor at the European Central Bank (ECB).
As well as setting out bank-specific capital requirements for the year ahead, SREP letters serve as a stern report card – not to give praise, rather they set out what more the supervisor wants from the bank’s management in the coming year.
Bankers will have read the latest letters with particular apprehension.
Although the collapse of Silicon Valley Bank (SVB) in the US and emergency rescue of Credit Suisse last March did not trigger failures elsewhere in Europe, they served as a stark reminder of how quickly confidence in banks can turn and how higher interest rates can pose risks to banks’ stability.
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