Work in the joint supervisory teams

BaFin forms part of the European Single Supervisory Mechanism (SSM) in which it plays a central role – among other things, through its participation in the joint supervisory teams – JSTs, (see info box "Supervision in the SSM"). Participants from different countries work together in the JSTs on a firm foundation of mutual trust. In the third year since the beginning of the SSM on 4 November 2014, many processes have become well established. With its experience as an integrated supervisory authority over many years, BaFin is an important initiator for the development and implementation of supervisory strategies for specific institutions. In addition, BaFin President Felix Hufeld is a member of the central decision-making body of the SSM, the Supervisory Board of the ECB.

End of 2017: 19 German groups of institutions under ECB supervision

Around 100 BaFin banking supervision employees in the internationally staffed JSTs are monitoring the current 19 German SI groups (see Table 32 "German institutions supervised by the ECB under the SSM")¹ and foreign SIs with a strong presence in Germany. They also carry out the supervisory review and evaluation process (SREP) which is important from a supervisory point of view. In the SREP, the JST assesses the risks of the individual bank and consolidates the findings in an overall rating.

The BaFin employees' responsibilities encompass the whole spectrum of the JSTs' supervisory activities, including thematic reviews and deep dives which shed more light on specific banks' risks, as well as ordering and following up supervisory audits. BaFin colleagues from the policy issues divisions and specialists in modelling, recovery and restructuring provide significant support to the supervisory process. BaFin's representatives are expert and sought-after contacts for the banks in all supervisory matters. In 2017, BaFin's employees participated in over 1,200 discussions and 84 thematic reviews alone and were involved in the SREP decisions of all the SIs supervised.

Assistance in thematic reviews

In 2017, the JSTs evaluated the readiness of the significant institutions for the introduction of IFRS² 9 on accounting for financial instruments. Application of IFRS 9 has been mandatory since 1 January 2018. The main feature of the standard is a change in the impairment model from recognising losses that have already occurred to recognising expected losses.

One of the SSM's supervisory priorities in 2017 consisted of conducting a thematic view on the preparation of the institutions for IFRS 9. The review covered over 100 significant institutions applying IFRSs. The objectives of the benchmark comparison were to assess the preparation for the introduction of IFRS 9, to estimate its qualitative and quantitative impact on the recognition of impairment losses in practice and to improve the quality of implementation of IFRS 9. The benchmark comparison started in December 2016 with the development of supervisory expectations for the implementation of IFRS 9 and an assessment methodology.

Supervisory expectations

The supervisory expectations were based on the published expectations of the Basel Committee and of the EBA as well as on the initial experience of implementation in the banking sector. In the first quarter of 2017, the JSTs collected data, information and documents from the institutions and subsequently discussed outstanding questions directly with the institutions. The quantitative data query was coordinated with an EBA query running in parallel. On the basis of the information obtained, the JSTs rated the institutions' state of preparedness for IFRS 9 in nine categories. The ECB carried out a horizontal analysis in the second quarter of 2017 for the purposes of quality control and to enable a benchmark comparison to be made. The JSTs discussed the findings of the thematic review in further consultations with the individual institutions in June and July 2017. Following on from that, the JSTs informed the institutions in writing of the conclusions reached and recommended measures to be taken. They also incorporated the results of the investigations in the SREP of the relevant institution. In 2018, the JSTs will follow up the institutions' responses to the conclusions and measures recommended on the implementation of IFRS 9. The ECB published a report on the summarised results of the thematic review on the implementation of IFRS 9 in November 2017.

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