Single Supervisory Mechanism - 20/09/2013
Long-awaited agreement on SSM reached
The European Parliament (EP) voted on 12 September 2013, in favour of the Regulation setting up a Single Supervisory Mechanism (SSM) in the Eurozone. The outcome of this legislative process, which formally began exactly one year ago with a proposal from the European Commission (EC), is the transfer of prudential regulatory powers from Eurozone national authorities to the European Central Bank (ECB). As a result, approximately 130 of Eurozone’s biggest banks will be directly supervised by the ECB. The ECB will also be responsible for the overall oversight of prudential supervision in the Eurozone. Non-Eurozone EU member states can opt-in to the SSM.
What was discussed on 12 September 2013?
In reality, agreement on nearly all aspects of the SSM was reached in the trialogues between the EP, the Council and the EC in March this year.
The EP’s final Plenary vote was however postponed until 12 September 2013, due to MEPs’ concerns that the existing accountability mechanisms of the ECB were insufficient, particularly in order to maintain the separation between the ECB’s monetary policy function and its newly acquired supervisory role.
In the lead up to EP vote, an institutional agreement between the ECB and the European Parliament was reached to address these concerns. The key terms of the agreement are reported to be:
- The ECB must submit the most important information from the minutes of the Board of Supervisors to the European Parliament;
- If the Governing Council of the ECB rejects a decision of the Board of Supervisors, the President of the European Parliament or the chairperson of the relevant committee must be informed;
- The Chair of the Single Supervisory Mechanism must be appointed by the Parliament and the Council. The Parliament can initiate the dismissal of the Chair;
- The vice chair (a member of the ECB Governing Council) must also be approved by the Parliament;
- The ECB has to answer oral and written questions by the European Parliament. If certain points need to be kept confidential, in camera discussions are possible;
- If the Parliament initiates inquiries the ECB has to cooperate as for a committee of enquiry. This makes scrutiny much easier for the Parliament; and
- The ECB must inform the Parliament about supervisory activities regularly.
This summary was made available in a press release from the Greens/European Free Alliance. The agreement is now expected to be officially signed by the EP and the ECB and published shortly.
The SSM Regulation now needs to be officially approved by the Council. Following the Council’s agreement, it can enter in the Official Journal (OJ). Publication in the OJ typically takes a few weeks. On this occasion, the publication in the OJ is an important trigger point not only because it marks the entry into force of the SSM Regulation, but because it enables the ECB to formally begin relevant preparatory work:
- One aspect of this preparatory work is the appointment of an SSM Supervisory Board. This body will then be tasked with key decisions on the operationalisation of the SSM.
- The ECB will have a minimum of one year since entry into force to take over supervisory responsibilities.
- However, the SSM regulation does have a provision enabling the EC, the EP and the Council to delay the go-live date if deemed necessary.
- A priority for the ECB will be to conduct an Asset Quality Review (AQR) of the banks it will directly supervise.
The SSM is only one of the pillars of the Banking Union. Following the SSM agreement, attention will now increasingly turn to the Single Resolution Mechanism (SRM) proposed by the EC on 10 July. Commissioner Barnier reiterated his commitment to seek agreement on SRM by the end of 2013 or by March 2014 at the latest.
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