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The role of judgement in supervisory scores and additional capital requirements assigned to banks

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  • Oprica, Silviu
  • Bobeică, Gabriel

Abstract

We empirically analyse the role of judgement in assigning overall scores by the euro area supervisors as part of the yearly Supervisory Review and Evaluation Process (SREP), which evaluates banks’ risks and sets supervisory actions. We also analyse its role in shaping the drivers of the Pillar 2 capital requirement (P2R) that banks must fulfil. We find that supervisors actively adjust the weight of the components of the overall score to reflect qualitative information, thereby smoothing fluctuations in the final assessment. The analysis reveals a common supervisory judgement channel, which could reflect shared priorities and concerns, such as systemic vulnerabilities or macroeconomic conditions. We also show that certain risks, such as credit risk, can play a decisive role in the overall assessment of a bank’s viability. These findings underpin the critical role of judgement in adapting supervisory frameworks to evolving risks and systemic conditions, providing flexibility at both the individual and system-wide levels. JEL Classification: G21, G28, C23, E58

Suggested Citation

  • Oprica, Silviu & Bobeică, Gabriel, 2026. "The role of judgement in supervisory scores and additional capital requirements assigned to banks," Working Paper Series 3233, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20263233
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    References listed on IDEAS

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    1. Beverly Hirtle & Anna Kovner & Matthew Plosser, 2020. "The Impact of Supervision on Bank Performance," Journal of Finance, American Finance Association, vol. 75(5), pages 2765-2808, October.
    2. Elena Carletti & Giovanni Dell’Ariccia & Robert Marquez, 2021. "Supervisory Incentives in a Banking Union," Management Science, INFORMS, vol. 67(1), pages 455-470, January.
    3. Mathias Dewatripont & Jean Tirole, 1994. "The prudential regulation of banks," ULB Institutional Repository 2013/9539, ULB -- Universite Libre de Bruxelles.
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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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