Last month, in response to the economic and sovereign debt crisis, the European Central Bank took on greater responsibility for oversight of the continent's banks. Under the new Single Supervisory Mechanism (SSM), it will lead supervision of Europe's 120 largest banks, with all prudential reporting data from these 'significant' organisations now collected by a central authority. Meanwhile, the continent's 3600 smaller banks will continue to be supervised by national authorities but following standards and instructions set by the ECB.

Speaking at the Handelsblatt conference on banking technology, Deutsche Bundesbank executive board member Joachim Nagel cited a study from Forrester calling the implementation of these new supervisory standards the greatest challenge for the industry since Lehman's collapse. In Germany alone, the regulatory costs for 2010 to 2015 is set hit EUR9 billion, according to KPMG.

However, Nagel brushed aside complaints from banks about the tsunami of regulation, saying: "With all sympathy for the great challenges that the banks are facing, we should not forget why these demands arose. They were due to sometimes glaring errors in developments and to a lack of meaningful possibilities of analysing the data that existed at the banks - both before the crisis and to this very day."

Banks are still not collecting and maintaining data in accordance with uniformed standards and they are not properly automating analysis of the data for proper risk management, leaving management making decisions in the dark.

Nagel says that the new risk data aggregation and reporting principles adopted by the Basel Committee, and set to come into force for the biggest banks in 2016, will help to improve matters by forcing harmonisation of IT infrastructures, flexible and consistent processes, and better analytical capabilities.

"Risk information should be complete, correct, consistent and current and made available in a form appropriate to the addressees. This has always been a demand of the supervisory authorities. However, the Basel standards now set out, for the first time, globally coordinated, specific regulatory requirements for the architecture of risk and data management."

The new burdens placed on banks by the SSM are going to have a major impact on IT departments, as they struggle to cope with a massive increase in data volumes and the effect this has on things such as processor performance and storage requirements. Overall, Nagel says that dealing with the new supervisory requirements will tie up considerable resources, requiring major IT investment. However, he also argues that the new regulation reduces operational risk, which can ultimately cut costs.

"Many regulatory requirements have been necessary precisely because banks' systems are not integrated. Only a holistic cross-business approach can take IT financial architecture to the next strategic level," he concludes.