The Single Supervisory Mechanism: ‘Singleness’ a Question of Degree Only?

On 29 January 2013, Vítor Constâncio, Vice-President of the European Central Bank (ECB), gave a speech in Frankfurt to the Banker’s Association for Finance and Trade – International Financial Services Association Europe Bank-to-Bank Forum entitled “Establishing the Single Supervisory Mechanism”.

Broadly, the legislative framework establishing the Single Supervisory Mechanism (SSM) provides that, of Europe’s 6,000 banks, the ECB will have direct responsibility only for:

  • systemically important European banks; and
  • banks which have received or requested public financial assistance.

In fulfilling its duties, the ECB will be assisted by national competent authorities, acting in accordance with ECB instructions.  In practice, the ECB will assume direct responsibility for over 80% of the euro area banking system in terms of assets.  However, the actual number of banks coming under direct ECB supervision may be as low as 150, with the remaining banks continuing to be supervised by their national competent authorities.

This has raised concerns about the creation of an uneven playing field and the possible effects on the completion of the single market.  It is felt that this is driven in the main by a desire that the politically influential German Landesbanks escape direct ECB supervision.  Nonetheless, Sr Constâncio believes that the difference between the two systems of regulation “will concern only the degree of centralisation of supervisory responsibilitieswithin the single supervisory mechanism composed by the ECB and the national supervisory authorities”.  The “singleness of the SSM” would be ensured by virtue of the fact that:

  • national supervisory authorities will have to comply with ECB regulations;
  • the ECB will have access to data concerning all credit institutions;
  • the ECB may decide at any time to exercise direct supervisory power over a bank; and
  • the ECB would in any event wield powers affecting banks “from their birth (i.e. the authorisation to operate) to their death”.

Subject to operational arrangements being in place, the ECB is due to assume its new supervisory role on 1 March 2014 or 12 months after entry into force of the legislation, which occurs later.  Currently, the SSM legislation is the subject of trialogue negotiations between the EU Council, EU Commission and EU Parliament.  This process is due to end soon, but unfortunately, it may be some time before we truly know the degree to which this is merely about ‘degrees of centralisation’ rather than a political compromises which threatens to give rise to a two-tier banking system within Europe.

This piece is cross-posted from Recovery and Resolution Plans with permission.