European banking supervision taking shape, say EU Auditors
Court of Auditors - ECA/14/30 02/07/2014
Notes to the editors:
European Court of Auditors (ECA) special reports are published throughout the year, presenting the results of selected audits of specific EU budgetary areas or management topics.
This special report (No 5/2014) entitled “European banking supervision taking shape - EBA and its changing context” assessed whether the Commission and the European Banking Authority (EBA) had satisfactorily carried out their responsibilities in setting up the new arrangements for the regulation and supervision system of the banking sector and to examine how successfully those new arrangements were functioning.
The ECA found that the Commission and EBA reacted to the financial crisis with a broad regulatory agenda. The Commission has in general been timely when drafting banking sector legislation. However, the strict deadlines stemming from global agreements in G20 and the Basel Committee, and the delays in political negotiations, have reduced the time available for external stakeholders to provide input through public consultation. Furthermore, it has resulted in short deadlines for EBA to draft technical standards and EBA has not been able to comment on the mandates and timeliness in the legislative process in a systematic fashion. Although many legislative proposals have been made in recent years (and others are currently in preparation) there has been no cross-sectoral assessment of the impact of the whole package of proposals
EBA has contributed to improving the cross-border supervision of banks as a facilitator and coordinator of the work of national supervisory authorities (NSAs). However, its role in banking supervision tasks has been limited in many areas. The day-to-day supervision of banks remains in the remit of the NSAs, and EBA does not carry out direct supervision of financial institutions. Supervisory convergence through the colleges of supervisors is limited, and these colleges spent too much time discussing procedures rather than focusing on risks.
EBA lacks the authority to make or enforce decisions on supervisory convergence and to resolve disputes between NSAs. Although EBA has made significant efforts to resolve disputes between NSAs, it has limited legal powers in mediation. EBA had the role of facilitating and coordinating the 2011 stress test, but it had neither the staff nor the necessary mandate to ensure the reliability of the stress test exercise. In addition, the stress test was conducted without financial ‘back stop’ measures at EU level. Although the 2011 stress test was helpful in initiating the recapitalisation of a large number of banks, it has also revealed the limitations of such exercises when not combined with an assessment of asset portfolio quality.
From autumn 2014, the European Central Bank (ECB) will have the authority to supervise the banking sector in all the euro-area Member States and other Member States that wish to participate. This Single Supervisory Mechanism (SSM) will involve cooperation between the ECB and the NSAs, where the ECB will be responsible for the overall functioning of the SSM. In its regulatory role, EBA has a mandate to develop technical standards and could usefully use its expert knowledge to continue in this task. However, questions arise over its future role in the supervision of banks, as its role is limited to coordinating and facilitating NSAs work and it lacks the power to impose specific decisions on NSAs. As a consequence, there is a risk of uncertainty over roles and responsibilities and of overlap between EBA and the ECB.
Among the set of recommendations, the ECA considers that successful EU-wide banking supervision requires a clear division of roles and accountability between EBA, the ECB and the NSAs, both those in and those outside the SSM. To avoid the risk of overlapping tasks and unclear responsibilities in some areas between the ECB, NSAs and EBA, the EU auditors recommend that roles and responsibilities be further clarified in legislation or memoranda of understanding. The ECA also recommends that procedures be set up to ensure close and frequent cooperation and information exchange between the different bodies and that particular attention should be paid to the period of transition before the SSM is fully established.
A short video interview with the ECA Member responsible for the report is available at: https://www.youtube.com/user/EUAuditorsECA