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Understanding the new European banking union - 14/09/2012


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Overview of the proposed changes

The European Commission has published, on 12 September 2012, its proposals for a single supervisory mechanism (SSM), a key element of the proposed banking union ("the Union"). The core of the SSM will be the transfer of all responsibilities and powers for the authorisation and prudential supervision of credit institutions (i.e. banks) in the Euro area to the European Central Bank (ECB).

The ECB’s objectives will be to promote the safety and soundness of credit institutions and the stability of the financial system.  National competent authorities (NCAs), i.e. banking supervisors in the Euro area, will continue to have a significant role in carrying out a wide variety of operational prudential supervisory activities, and will remain responsible for conduct of business supervision.

However, the ECB will be firmly in charge and will ultimately be able to instruct NCAs.  Precisely how activities and tasks will be divided between the ECB and NCAs will have to be determined, although the documents published today contain some useful examples of the types of activity that may fall to NCAs.  It will remain open to other non-Euro area Member States to "opt in" to the SSM, provided they undertake to comply with ECB acts and instructions.

The responsibilities of the European Banking Authority (EBA) will remain essentially unchanged. It will be responsible for the single rulebook which will apply across the EU as a whole. In addition, it has now also been tasked by the Commission to prepare a single supervisory handbook – a "how to do it" manual for supervision across the EU. The ECB will co-ordinate the input of the SSM countries into the EBA which we assume means that the SSM will speak and vote as one. The EBA's governance arrangements will be changed to reflect this new reality and provide safeguards for both the Union and non-participating Member States.

There are no new proposals on Deposit Guarantee Schemes or resolution in today's announcement.  However, in its roadmap document the Commission has signalled its intention to bring forward a proposal for a single resolution mechanism for the Union which would resolve credit institutions and co-ordinate the application of resolution tools within the Union.

Discover the whole text of the newsletter in the attached PDF.

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