European Commission – MEMO/13/899 Brussels 15/10/2013
President Barroso said:
“It is good news that the Council has given the final sign-off to the Single Supervisory Mechanism, the first leg of our Banking Union. The Commission is ready to help in any way with the European Central Bank’s intensive preparations to ensure the SSM begins its work next year. Now it is urgent to put the second leg in place by agreeing the single resolution mechanism and fund and the single rule book for bank resolution tools and deposit guarantees. These new rules will help build a stable financial sector, restore fair lending conditions across the EU and ensure that banks, not taxpayers, pay for their own mistakes. We owe it to our citizens to deliver before the European Parliament’s elections in May.”
Commissioner Barnier said:
“Today, the Council has given its final approval for the Single Supervisory Mechanism, the first pillar of the Banking Union. We have written regulatory history. This is a momentous step: the start of a new era for the supervision of Eurozone banks.
The ECB will soon take on vast new powers. Many challenges lie ahead but I am confident that it will succeed. The credibility of the banking system is at stake.
I would in particular like to acknowledge the crucial roles played by the Cypriot, Irish and Lithuanian presidencies and the European Parliament in finding this agreement.
But better supervision is not enough. A banking union also requires action to restructure non-viable banks when necessary. That is why the supervisory system needs to be complemented by an integrated European resolution system for all countries participating in the banking union.
We have had a useful discussion in Luxembourg today on these issues. We must find a final agreement on the Directive on Banking Resolution for Member States and political agreement in Council on the Single Resolution Mechanism by the end of year.”
On 12 September 2012 the Commission adopted two proposals for the establishment of a single supervisory mechanism (SSM) for banks led by the European Central Bank (ECB). The proposal for the SSM regulation aimed to confer upon the ECB specific supervisory tasks over credit institutions in the Euro area. The accompanying proposal for the regulation on the European banking Authority (EBA) aimed to introduce limited amendments to the Regulation setting up the EBA to ensure a balance in its decision making structures between the euro area and non-euro area Member States.
This legislative package followed the Euro area summit on 29 June 2012, which called on the Commission to present proposals for the setting up of a single supervisory mechanism as a precondition for a possible direct recapitalisation of banks by the ESM (European Stability Mechanism).
A unanimous agreement was reached in the ECOFIN Council on 13 December on the Commission’s proposal for a Single Supervisory Mechanism. The European Council of 14 December welcomed the agreement reached and called on the co-legislators “to rapidly agree so as to allow its implementation as soon as possible”.
Following intensive trilogue negotiations during January and February, co-legislators reached agreement on the package on 19 March 2013.
The European Parliament had given its assent in principle to the package in May. This was followed by national parliamentary procedures which have been completed in the meantime. After the EP vote, the Council has formally confirmed the agreement, and the legal texts will be published by the end of October. The SSM is expected to enter into force on 4 November 2013.
The supervisory powers of the ECB will be fully effective and operational one year after the entry into force of the text. New rules adapting the operating rules of the European Banking Authority (EBA) to this new framework will also enter into force in parallel.
Key elements of the SSM:
The establishment of the Single Supervisory Mechanism (SSM) is a first step towards a banking union and one of the pre-conditions for direct recapitalisation by the ESM. An integrated “Banking Union” will also include a common bank resolution mechanism, underpinned by a single rulebook.
- The SSM applies to all the euro-area Member States and is open to the participation of other Member States who wish to embark on a path of deeper integration for supervision.
- Non-euro area Member States may decide to join the SSM by establishing a close cooperation between their competent authorities and the ECB. In that case they may, on an equal footing with the euro-area Member States, participate in the activities of the newly created Supervisory Board which is in charge of planning and executing the supervisory tasks conferred upon the ECB.
- The Regulation confers key supervisory tasks and powers to the ECB over all the credit institutions established within the euro area. The ECB carries out its tasks within a SSM composed of the ECB and national competent authorities.
- Within the SSM, the ECB will be responsible for the supervision of all 6000 banks of the euro area. In particular:
- the ECB shall ensure the coherent and consistent application of the Single rulebook in the euro area.
- the ECB will directly supervise banks having assets of more than EUR 30 billion or constituting at least 20% of their home country’s GDP or which have requested or received direct public financial assistance from the EFSF (European Financial Stability Facility) or the ESM.
- the ECB will monitor the supervision by national supervisors of less significant banks. The ECB may at any moment decide to directly supervise one or more of these credit institutions to ensure consistent application of high supervisory standards. The work of national supervisors is integrated into the SSM: for instance, the ECB will send instructions to national supervisors, and national supervisors have a duty to notify the ECB of supervisory decisions of material consequence.
- The governance structure of the ECB will consist of a separate Supervisory Board supported by steering committee, the ECB Governing Council, and a mediation panel to solve disagreements that may arise between national competent authorities and the Governing Council. Clear separation between the ECB’s monetary tasks and supervisory tasks is fully ensured.
- For cross-border banks active both within and outside Member States participating in the SSM, existing home/host supervisor coordination procedures will continue to exist as they do today. To the extent that the ECB has taken over direct supervisory tasks, it will carry out the functions of the home and host authority for all participating Member States.
- The rules on the functioning of the EBA have been adapted and its role reinforced. The EBA will continue developing the single rulebook applicable to all 27 Member States. In order to foster consistency and efficiency of supervisory practices across the whole Union, it will develop a single supervisory handbook. It will also ensure that regular stress-test are carried out to assess the resilience of European banks. There will be safeguards for non-euro zone Member States by means of double majority voting requirements for EBA decisions on mediation and on technical standards. This ensures that decisions are backed by both a majority of the participating and the non-participating Member States.
- The SSM will be in place one year after the entering into force of the agreed texts. To allow for a smooth transition some flexibility by means of transitional arrangements is foreseen.
- The Commission also hopes for quick agreement by the end of the year on the pending proposals on bank restructuring and resolution and deposit guarantee schemes, and on the Commission’s proposal for a single European resolution mechanism to deal efficiently with cross-border bank resolution and avoid taxpayers’ money going into rescuing banks.
FOR MORE INFORMATION