Supervisory authority established after years of tug-of-war in the aftermath of the subprime crisis for the euro area as a whole as well as for EU members wishing to participate. – From mid-2014, the ECB will supervise the most important banks in the euro area and the other participating EU member states. Initially, these will be 128 institutions, but together they will account for around 85 percent of the combined total assets of all banks. The ECB supervisors will have to examine risky securities worth around EUR 3.7 trillion; on average, they will have to examine and evaluate 1,245 credit files per bank. The 4,000 or so less important banks will generally remain under the direct supervision of the national authorities. However, the ECB will ensure the proper application of the Single Supervisory Mechanism here as well. This is done through the binding definition of a Supervisory Manual. This manual defines precisely how the national supervisory authorities are to perform their tasks. – The separation of monetary policy and financial supervision is ensured by a new committee at the ECB and by a procedure for settling any conflicts of interest with the Governing Council. As a result, the ECB will be responsible for almost the entire area of microprudential supervision. Among other things, the ECB will monitor compliance with capital requirements and the adequacy of capital in relation to the risk profile of a credit institution. In addition, the ECB will monitor compliance with leverage ratio and liquidity coverage ratio requirements, set capital buffers, and, in coordination with resolution authorities, intervene at an early stage if a bank does not meet or is at risk of not meeting the regulatory capital ratio. In the future, the ECB will also be decisively involved in the granting of permission to conduct banking business and the review of qualifying shareholdings. – Moreover, in the case of cross-border branches or services between participating and non-participating Member States, the ECB will perform the tasks of the competent authority of the home Member State and the host Member State, respectively. – In particular, measures against money laundering and terrorist financing and in the area of consumer protection remain the responsibility of the national authorities and the European Banking Authority. – Within the SSM, responsibilities are divided between the ECB and national supervisors according to whether the institution is considered “significant” or “less significant.” Direct supervision by the ECB is generally limited to the significant institutions. The national supervisory authorities assist the ECB in performing this task, for example by preparing decisions and providing all necessary documentation. A framework regulation governs practical cooperation and workflows within the SSM. – In the case of less significant institutions, the national supervisory authorities are generally the only ones to take action. Supervisory decisions vis-à-vis institutions are taken exclusively by them. However, they regularly inform the ECB about the performance of their supervisory tasks also vis-à-vis less significant institutions. – Finally, the ECB may also address regulations, guidelines and general instructions to national supervisory authorities, according to which they exercise their competence over less significant credit institutions and take supervisory decisions. In this context, the ECB may go beyond the requirements of national supervisory authorities with regard to capital buffers. It may also admit new banks and close institutions, and this applies to all banks, not just those under its direct supervision. The working language in the SSM is English. The banks have – at least for the time being – the right to choose their national language for correspondence with the SSM. – Criticism from experts on the reorganization of supervision in Europe was mainly directed at two points, namely – the lack of parliamentary control of the authority, – the entanglement of supervision with the central bank and the possible conflicts of interest arising from this (situations which have the potential to undermine the impartiality of acting as a supervisor because of the possibility of opposing interests with regard to ECB monetary policy), and – the regulation regarding government bonds, which are to be exempt from a stress test. In particular, the books of Southern European countries contain huge amounts of government bonds of their own country, the value of which is doubtful. – On the other hand it should be recognized that by creating a uniform system of regulation and supervision in the whole EMU there will be stopped national supervisors from sheltering their national champions and rip up barriers to flows of capital between the member states. This new quality, however, has its price. – See bancassurance, asset quality, asset quality review, supervisory mechanism, unified, banking supervision, European, fees, Bank for International Settlements, College of Supervisors, banking union, Banking Supervisory Committee, Cassis de Dijon judgment, Committee of European Banking Supervisors, Comprehensive Assessment, democratic deficit, Europe AG, ECB sin, Financial Stability Forum, conflict of competence, supervisory, concentration ratio, lead supervisor, leverage ratio, mediation, nuclear option. Regulatory framework, unified, on-site review. – See Deutsche Bundesbank Annual Report 2010, pp. 114 f. (progress toward supervisory colleges), Deutsche Bundesbank Monthly Report of September 2011, pp. 83 ff. (international developments; many overviews), BaFin Annual Report 2012, p. 153 (supervisory colleges in the run-up to European banking supervision), Financial Stability Report 2013, pp. 10 (national supervisors and European supervision), Deutsche Bundesbank Annual Report 2013, p. 26 ff. (explanatory presentation; overviews; legal sources), BaFin Annual Report 2013, p. 82 ff. (presentation of the SSM), Deutsche Bundesbank Monthly Report of October 2014, p. 45 ff. (detailed presentation; internal working methods; internal bodies; references).
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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
E-mail address: info@ekrah.com
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