What is the SREP (Supervisory Review and Evaluation Process)?

The **Supervisory Review and Evaluation Process (SREP)** is the procedure by which banking supervisors regularly assess each institution’s risks and determine whether its own funds and internal arrangements ensure sound risk management. The legal basis is the **Capital Requirements Directive (CRD) — Directive 2013/36/EU**: **Art. 97** requires supervisors to carry out the supervisory review and evaluation, and **Art. 104** (with Art. 104a) gives them the powers, including to require additional own funds ^[1].

With **CRD VI (Directive (EU) 2024/1619)**, the framework was revised in 2024 (transposition deadline 10 January 2026, application from 11 January 2026), sharpening supervisory powers, sanctions and ESG risks, among other things ^[2].

The **EBA Guidelines EBA/GL/2022/03** (applicable since 1 January 2023, replacing EBA/GL/2014/13) harmonise the methodology around four assessment blocks: (1) **business-model analysis** (viability and sustainability), (2) **internal governance and risk management**, (3) **risks to capital** (credit, market, operational, interest-rate, ICT risk), and (4) **risks to liquidity and funding** ^[3].

Each block and the overall judgement are scored on a scale of **1 to 4** (1 = lowest risk, 4 = highest), plus an “**F**” for failing or likely to fail. Note: a revised SREP guideline aligning with CRR III / CRD VI was in progress in mid-2026 and will replace EBA/GL/2022/03 once finalised — until then, 2022/03 remains authoritative ^[3].

The key outputs of the SREP are two bank-specific capital figures: the **Pillar 2 Requirement (P2R)** — **binding**, covering risks not (or insufficiently) captured under Pillar 1 (legal basis Art. 104a; to be met with at least 75% Tier 1, of which at least 75% CET1) — and **Pillar 2 Guidance (P2G)** — **non-binding**, an expectation of additional capital for stress periods ^[1].

In the capital stack, P2R sits **above** Pillar 1, followed by the combined buffer requirement (CBR); P2G sits **on top**. Importantly, the MDA trigger (Maximum Distributable Amount, distribution restriction) attaches to the top of the **binding** stack (Pillar 1 + P2R + CBR) — dipping into P2G does **not** trigger an automatic distribution restriction ^[4].

Order of magnitude (2025 SREP cycle, for 2026 capital requirements, ECB release of 18 Nov 2025): average overall SREP score 2.5; average P2R around 1.2% of RWA (total P2R ≈ 2.1%); average P2G 1.1%; overall CET1 requirement including P2G around 11.2% ^[4]. These figures are reset annually.

Within the Single Supervisory Mechanism (SSM), the **ECB** runs the SREP for **significant institutions** directly; **less significant institutions** are supervised by national authorities (e.g. BaFin/Bundesbank, FMA) under ECB oversight. An institution is significant where, among other criteria, total assets exceed EUR 30 bn or it is of high economic importance — the criteria are in Art. 6(4) of the SSM Regulation (EU) No 1024/2013 ^[5].

The bank’s internal processes feed the SREP directly: the **ICAAP** (Internal Capital Adequacy Assessment Process) feeds Element 3 (capital) and shapes the P2R/P2G calibration; the **ILAAP** (Internal Liquidity Adequacy Assessment Process) feeds Element 4 (liquidity). Robust ICAAP/ILAAP submissions materially improve the SREP outcome.

A distinction for investment firms: since 26 June 2021, most investment firms are subject to their own prudential regime under the IFD (Directive (EU) 2019/2034) and IFR (Regulation (EU) 2019/2033), with their own SREP — not the CRD SREP. Only large “Class 1” investment firms continue to be treated like credit institutions.