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

Silviu Oprica and Gabriel Bobeică

No 3233, Working Paper Series from European Central Bank

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

Keywords: overall SREP score; panel data; Pillar 2 capital requirements (P2R); supervisory judgement; Supervisory Review and Evaluation Process (SREP) (search for similar items in EconPapers)
Date: 2026-05
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20263233

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