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European Commission


Brussels/Strasbourg, 12 September 2013

Legislative package for banking supervision in the Eurozone – frequently asked questions

What has been voted today?

The European parliament has adopted today a package of legislative acts to set up a single supervisory mechanism (SSM) that contains:

  1. a Council Regulation to give specific tasks related to financial stability and banking supervision to the European Central Bank (ECB);

  2. a Regulation of the European Parliament and of the Council designed to align the existing Regulation 1093/2010 on the establishment of the European Banking Authority (EBA) to the modified framework for banking supervision.

The texts will come into force after formal adoption by the Council of Ministers and publication in the Official Journal.

Why is a single supervisory mechanism necessary and when should it be in operational?

There are currently vulnerabilities in the banking sector which have a negative impact on the sovereign debt crisis. The negative feedback loops between individual Member State budgets and some of their banks are a threat to financial stability in the EU. This problem poses specific risks within the euro area where the single currency increases the likelihood of negative spill-over effects across borders. Furthermore, the trend of financial institutions to increasingly focus on their national home markets significantly undermines the single market for financial services which constitutes an important basis for economic growth. It also impairs the transmission of monetary policy impulses by the ECB into actual lending to the real economy.

Therefore, in May 2012, as part of a longer term vision for economic and fiscal integration, the Commission called for a banking union to restore confidence in banks and the euro.1 The June 2012 European Council decided that the countries of the euro area would create a single supervisory mechanism for banks.

Whilst the ECB may gradually assume supervision of some banks at an earlier date, the ECB will assume its tasks in full one year after the entry into force of the regulation.

Will all banks be covered or only big banks from the euro area?

The single supervisory mechanism will cover all (approximately 6,000) banks in the euro area. Although large banks of systemic importance are at the heart of the European supervisory framework, recent experience shows that relatively smaller banks can also pose a threat to financial stability. It is therefore essential that the supervisory tasks conferred on the ECB can be exercised over all those banks.

The degree of direct European supervision by the ECB on a daily basis and the role played by national supervisors will vary according to the size of banks. But the ECB will be responsible for ensuring appropriate monitoring of all those banks' performance of their supervisory tasks. The ECB will particularly have responsibility for direct supervision of 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 European Financial Stability Facility (EFSF) or the European Stability Mechanism (ESM).

While the SSM will cover all banks in the euro zone, national supervisors will have responsibility for day-to-day supervision of less significant banks. However, the ECB may at any moment decide to directly supervise one or more credit institutions to ensure consistent application of high supervisory standards. The work of national supervisors is integrated into the Single Supervisory Mechanism: for instance, the ECB will send general instructions to national supervisors, and national supervisors have a duty to notify the ECB of supervisory decisions of material consequence.

What are the competences of the ECB in the transitional phase?

The legislative package on the SSM will enter into force five days after its publication in the Official Journal. The ECB shall exercise its tasks in full one year after the entry into force.

In the meantime, the ECB has to publish the detailed operational arrangements for the implementation of the tasks conferred on it and has to send quarterly reports to the European Parliament, the Council and the Commission on progress made in the operational implementation of the Regulation.

The ECB may also start carrying out tasks conferred on it by the Regulation (without taking supervisory decisions) in respect of any credit institution following a decision to the credit institution concerned and to the national competent authority. Upon unanimous request by the ESM, the ECB may take over direct supervision of a credit institution as a precondition for direct recapitalisation following a decision addressed to the entities and the national supervisory authority concerned.

Why will the ECB be the institution in charge of supervising the euro area banking system?

There are several reasons why the ECB is best placed for carrying out banking supervision:

  1. The ECB will ensure a truly European supervision mechanism that is not prone to the protection of national interests and which will weaken the link between banks and national sovereigns.

  2. The ECB's strong focus and expertise on financial stability will ensure that financial stability risks are sufficiently taken into account.

  3. The Treaty on the functioning of the European Union (TFEU, article 127(6)) stipulates that supervisory tasks can be conferred on the ECB.

  4. Finally, the organisational principles laid down in the legislative package will ensure the separation of the ECB's monetary policy tasks from its supervisory tasks.

What exactly will the powers of the ECB be? What will it do in practice?

The ECB will be exclusively responsible for key tasks concerning the prudential supervision of credit institutions. In particular, it will:

  1. authorise and withdraw the authorisation of all credit institutions in the euro area;

  2. assess acquisition and disposal of holdings in banks;

  3. ensure compliance with all prudential requirements laid down in EU banking rules and set, where necessary, higher prudential requirements for banks to protect financial stability under the conditions provided by EU law.

To carry out supervision on a consolidated basis over banks established in of the participating Member States including in colleges of supervisors.

  1. carry out supervisory stress tests to support the supervisory review, and carry out supervision on a consolidated basis – such stress tests are a supervisory tool also used by national authorities to assess the stability of individual banks; they will not replace the stress tests carried out by the EBA with a view to assessing the soundness of the banking sector in the Single Market as a whole;

  2. closely cooperate with national competent authorities in the exercise of macro-prudential powers and to impose higher capital buffers than national competent authorities subject to specific conditions;

  3. carry out supplementary supervision over credit institutions in a financial conglomerate;

  4. apply requirements for credit institutions to have in place robust governance arrangements, processes and mechanisms and effective internal capital adequacy assessment processes;

  5. carry out supervisory tasks in relation to early intervention when risks to the viability of a bank exist, in coordination with the relevant resolution authorities.

National authorities will assist the ECB. They will prepare and implement the ECB acts under the oversight of the ECB, including day-to-day supervision activities.

Moreover national supervisory authorities will remain responsible for carrying out tasks not conferred on the ECB, including, for example, on issues of consumer protection, receiving notifications from credit institutions in relation to the right of establishment and the free provision of services, supervising credit institutions from third countries establishing a branch or providing cross-border services in the EU, supervising payments services, carrying out day-to-day verifications of credit institutions, preventing the use of the financial system for the purpose of money laundering and terrorist financing.

Which powers will the ECB have to carry out its tasks?

In order to execute its tasks, the ECB will have the necessary supervisory and investigatory powers once this legislative package enters into force.

The ECB's supervisory powers will be the same as the powers which competent authorities shall be granted under applicable Union law. Under the Capital Requirements Directive (CRD IV) package (IP/11/915; MEMO/13/690), competent authorities are equipped with a broad range of supervisory powers - for example they can request banks to strengthen their governance or improve their capital situation. The ECB will be considered a competent authority and will have all powers available to competent authorities under the Capital Requirements Directive (CRD IV) package.

The ECB's investigatory powers are provided for in the Regulation itself. These include for example the power to request all necessary information, to conduct all necessary investigations of credit institutions and the persons involved in the activities of the respective institutions as well as to carry out on-site inspections. The ECB may also impose pecuniary sanctions where European Union law confers such powers on supervisory authorities.

What would the role of national supervisory authorities be in the new context?

National supervisors have an important and long-established expertise in the supervision of credit institutions within their territories and have established a large body of dedicated and highly qualified staff for these purposes.

National supervisors will therefore continue to play a pivotal role in banking supervision in the Member States under the SSM.

First, in accordance with Treaty rules the ECB can only be assigned specific tasks, not overall responsibility for supervision. As a consequence, certain key supervisory tasks necessary for the supervision of credit institutions, notably all key tasks related to financial stability, are conferred on the ECB while all tasks not spelt out in the regulation will remain the competence of national supervisory authorities.

These include – amongst others - the powers to supervise credit institutions from third countries establishing a branch or providing cross-border services in the EU, to supervise payments services, to impose pecuniary sanctions on credit institutions for breaches of EU legal acts except where the breach concerns an ECB act or to carry out day-to-day verifications of credit institutions.

Second, national supervisors will have responsibility for day-to-day supervision of less significant banks.

Thirdly, even for the tasks conferred on the ECB, most day-to-day verifications and other supervisory activities necessary to prepare and implement the ECB's acts could be exercised by national supervisors operating as an integral part of the SSM. An SSM covering all banks in the participating Member States can only work based on a model which integrates a strong role for national level supervisory expertise. The proposal recognises that within the SSM, national supervisors are in many cases best placed to carry out such activities, due to their knowledge of national, regional and local banking markets, their significant existing resources and to locational and language considerations, and therefore enables the ECB to rely on national authorities to a significant extent.

How would democratic accountability of the ECB be ensured?

The ECB will be independent when carrying out banking supervision and will be subject to strong accountability provisions to ensure that it uses its supervisory powers in the most effective and proportionate way, within the boundaries set by the Treaty in parallel to the arrangements provided for the European Supervisory Authorities.

The ECB shall therefore be accountable for its tasks to the European Parliament (EP) and to the Council. The ECB will be subject to regular reporting requirements and will respond to questions. The chair of the supervisory board will present an annual report on the ECB's supervisory activities to the EP and the Eurogroup and may be heard by the competent committees of the EP on other occasions. The ECB will also be obliged to respond to any questions asked by the EP and its members on its supervisory activities.

The legislative package also provides for a right of the Parliament to receive all relevant information – via in-camera hearings in case of confidential information - and have access to relevant documents and to enquiry on the ECB activity. The ECB and the Parliament have agreed on arrangements on the practical modalities to exercise democratic scrutiny, including on access to information including summaries of discussions in the Supervisory Board, cooperation in investigations and information on the selection procedure of the Chair of the Supervisory Board.

Moreover, under the Treaty, the President and the Vice-President of the Governing Council as the body with final responsibility for the ECB's action, as well as the other members of the Executive Board, are appointed by the European Council following a proposal made by the ECB which has to be approved by the Parliament. The Chair will be chosen on the basis of an open selection of which the Council and the EP shall be duly informed. The Council and EP can express their views on the adequacy of the performance of the Chair to which the Supervisory Board has to react. As regards the budget, in accordance with 314(1) TFEU the ECB's budget is not part of the Union budget.

Nevertheless, with a view to ensuring accountability within this framework, the ECB will be required to develop a separate budget line for supervisory tasks from its general budget. Expenditures relating to the ECB's supervisory tasks will be financed by charging fees from supervised institutions.

How will the ECB be able to deal with the new tasks: will it get more staff and budget?

National supervisory authorities will carry out most of the preparation and implementation of the ECB's supervisory decisions. The ECB will have to build up the necessary resources to ensure decision-making and overall coordination of the Single Supervisory Mechanism. Those resources should be obtained in a way that ensures the ECB's independence from undue influences by national competent authorities and market participants, and separation between monetary policy and supervisory tasks.

The costs of supervision should be borne by the banks which are subject to it. The expenditure relating to the performance of the supervisory tasks will therefore be financed primarily by fees levied by the ECB on the credit institutions subject to its supervision, and will be based on the size and the risks posed by these institutions.

Why should the ECB's supervisory tasks be carried out in operational separation from its monetary policy tasks?

Within the ECB an operational separation between monetary policy tasks and supervisory tasks is necessary to eliminate potential conflicts of interest between these two tasks. Conflicts of interest could for instance emerge in a situation where in order to meet the monetary policy objective of price stability, interest rates need to be raised, while this might at the same time have adverse effects on the solvency and profitability of the banking sector.

Therefore, the proposal lays down a number of organisational principles to ensure a clear separation between monetary policy and supervision while at the same time allowing the ECB to take full advantage of the synergies between monetary policy and supervision.

To implement the necessary separation between both tasks and ensure appropriate attention to supervisory tasks, the ECB will ensure that:

  1. All preparatory and executing activities within the ECB will be carried out by bodies and administrative divisions separated from those responsible for monetary policy. To this end a supervisory board will be set up that will prepare decisions on supervisory matters which will be supported by a steering committee of limited composition which will include a further ECB representative, in addition to the Chair and the Vice-Chair, who ensure representation of the European interest.

  2. The Governing Council of the ECB will be ultimately responsible for taking decisions but may decide to delegate certain tasks or decision-making power to the supervisory board. - The supervisory board will be led by a Chair and a Vice-Chair elected by the ECB Governing Council and composed in, addition to them, of four representatives of the ECB and of one representative of each national central bank or other national competent authority. Furthermore a mediation panel will be established to solve disagreements that may arise between national competent authorities and the Governing Council.

  3. Finally specific provisions on staff are introduced to prevent conflicts of interest and in particular the establishment of procedures providing for appropriate cooling-off periods, as well provisions on whistleblowing.

What will the impact of the SSM on the relationship between home and host supervisors of banks active in several Euro area Member States?

Today, day-to-day supervision of cross-border banks is carried out by national supervisors. Under EU law the home supervisor and the host supervisors of other Member States where the bank establishes branches or subsidiaries or provides cross-border services have to coordinate their action. One important forum for coordination is the colleges of supervisors bringing together all supervisors responsible for subsidiaries in a banking group.

With the creation of the SSM, many supervisory tasks in the euro area Member States will be carried out by the ECB for all Member States concerned.

Nevertheless, existing home/host supervisor coordination procedures and colleges of supervisors will continue to exist as they do today, as far as coordination with supervisors in non-euro area Member States is concerned. Non-euro area Member States will retain all their existing powers and prerogatives. However, to the extent that the ECB has taken over supervisory tasks, it will carry out the functions of the home supervisor for euro area banks and the host supervisor for other banks active within the euro area. The obligations to cooperate in consolidated supervision and between home and host supervisors, to exchange information and to coordinate within colleges will apply fully to the ECB. Colleges of supervisors will be the forum for coordination between the ECB and national supervisors of non-euro area Member States.

For coordination within the Eurozone, the new arrangements within the SSM will substitute the complex interaction between home and host country authorities and within colleges. The ECB will exercise at the same time the powers of the former home supervisor and the former host supervisor. Both will be represented on the ECB supervisory board and will therefore have a voice over the exercise of all those powers. The SSM will be free to set up internal coordination groups dealing with the supervision of specific cross-border banks and involving the relevant national supervisors.

How would non-euro area countries be able to join the single supervisory mechanism?

Under the Treaty, the ECB cannot exercise binding powers outside the euro area. Therefore, non-euro area Member States cannot be fully part of the single supervisory mechanism. Nevertheless, non-euro area countries may notify the ECB of their intention to join the SSM by establishing close cooperation between their competent authorities and the ECB. To that purpose, they will have to take all necessary measures to ensure that their national competent authorities will abide by and implement relevant ECB acts. Where all the conditions for establishing close cooperation are met, the ECB would be obliged to take a decision to establish such close cooperation, allowing the non-euro area country to take part in deliberations in the supervisory board, which would thereby gain access to all information available within the SSM.

The ECB or the Member States at stake may terminate the close cooperation subject to certain specific conditions.

What impact does the SSM have on the role of the European Banking Authority?

The European Banking Authority (EBA) and the European System of Financial Supervision established in 2011 have significantly improved cooperation between banking supervisors within the Union. The EBA is making important contributions to the creation of a single rulebook for financial services in the Union, and has played a crucial role in implementing in a consistent way the recapitalisation of major credit institutions of the Union as agreed by the informal Meeting of Members of the European Council in October 20112. It is responsible for the EU-wide stress test exercises to assess the resilience of financial institutions to adverse market developments, as well as to contribute to the overall assessment of systemic risk in the EU financial system. However, day-to-day supervision has remained at national level.

The ECB will carry out supervisory tasks which are currently carried out by national supervisors in the Euro area, not by the EBA. The ECB will cooperate with the EBA within the framework of the European System of Financial Supervision. The role of EBA will be preserved. It will continue developing the single rulebook applicable to all 27 Member States and enhance convergence of supervisory practices across the whole Union. The revised EBA Regulation also asks the EBA to develop a Single Supervisory Handbook to complement the EU's single rulebook and ensure consistency in bank supervision across the 28 countries in the single market, and strengthens its role and responsibilities to carry out stress tests.

How would the ECB interact with European Supervisor authorities?

The new European Supervisory Authorities – the European Banking Authority (EBA), the European Securities and Markets Authority (ESMA), and the European Insurance and Occupational Pensions Authority (EIOPA) – will all retain existing powers and tasks.

In particular they will continue to contribute to the creation of a single rulebook and to establishing a level playing-field in the single market.

The proposed amendments to the EBA Regulation will ensure that the EBA can continue to fulfil its mission effectively as regards all Member States. In particular, the EBA is enabled to exercise its powers and tasks not only vis-à-vis national supervisors but also vis-à-vis the ECB as a European institution.

In order to ensure EBA decision-making structures continue to be balanced and effective and preserve the interests of all its members, the amendments to the EBA Regulation will adapt voting arrangements within the EBA, allowing the EBA to continue fulfilling its mission in an optimal way.

How will the voting modalities under the EBA regulation be modified (decisions subject to qualified majority/ simple majority)?

Within the EBA, today as a matter of principle decisions are taken by simple majority (one member, one vote) by the members of the EBA's Board of Supervisors. As regards binding EBA powers, this includes decisions on the application of EU law in the context of the breach of law procedure, action in emergency situations and settlement of disagreements between national authorities (in the latter case subject to a specific voting procedure in certain cases). On the other hand, decisions in relation to the adoption of guidelines and recommendations and of draft technical standards as well as on budgetary matters are taken by qualified majority (as defined in Article 16 (4) TEU and in Article 3 of the Protocol (No 36) on transitional provisions based on the rules applicable in the Council.

Today, supervisors of euro area Member States – if they all cast their votes in the same way - have a simple majority but do not have a qualified majority of the votes in EBA's Board of Supervisors.

In order to ensure EBA decision-making structures continue to be balanced and effective and preserve the interests of all its members, voting arrangements within the EBA would be adapted. Decisions taken by simple majority or by qualified majority will now require support by a simple majority of both participating and non-participating Member States to be adopted.

Today's proposal does not propose to amend the composition of the Board of the EBA, which deals with matters both related to the future activities of the SSM and other matters, but ensures that the ECB's supervisory arm participates fully in the board of the EBA.

The voting arrangements will be subject review in case the number of non-participating Member States will be four or less in the future.

How will the package interact with the Capital Requirements Directive (CRD) IV?

The CRD IV package, which will be applicable as of 1 January 2014, (IP/ 11/ 915; MEMO/13/690) is set to regulate the activities of banks and the prudential framework that governs the whole EU internal market and therefore constitutes an important element of the Single Rulebook. Supervision at European level will build on the Single Rulebook, just as supervision outside of the SSM will.

The ECB will exercise its supervisory tasks in accordance with the EU supervisory framework established by the CRDIV package.

What does this mean for the proposals on deposit guarantee schemes and bank resolution?

Work on finalising the current proposals on deposit guarantees schemes (DGS) (IP/10/918) and bank recovery and resolution (IP/12/570) is being accelerated in order to have them adopted by the end of 2013. This will establish the common framework of rules for protecting deposits and for dealing with banks in difficulty across the EU's single market, covering all relevant definitions, powers, objectives, principles, tools, procedures, safeguards etc. Most importantly, it will set in motion the process of making instruments available to make sure that banks pay for bank restructuring, rather than taxpayers, via bail-in mechanisms and national resolution funds.

How do the SSM and future Single Resolution Mechanism interrelate?

The SSM Regulation concerns the daily task of banking supervision. Consistent with the existing EU regulatory framework for banking supervision as well as the Commission's proposal for bank recovery and resolution (IP/12/570), it includes some powers in terms of early intervention if a bank breaches some of its regulatory requirements. In such a scenario, some of the possible measures which the supervisor could take include requiring the bank to reduce its exposures to certain risks, to increase its capital, or to implement changes to its legal or corporate structures. All other tasks related to resolution remain with the national authorities or, in the future, with the single resolution mechanism, which was proposed by the Commission last July. (see IP/13/674 and MEMO/13/675).

This single resolution mechanism (SRM) when agreed, would have the responsibility to resolve banks and to coordinate in particular the application of resolution tools to banks within the banking union. It will be a natural complement to the establishment of a single supervisory mechanism and the SSM will play a key role in the resolution process. According to the Commission's proposal for a SRM, a bank would be placed into resolution when it was failing or likely to fail, when no private sector arrangement could avert failure, and when resolution was in the public interest because the bank’s failure would damage financial stability. In practice, the first step in that process would be for the ECB, as the supervisor, to signal when a bank in the euro area or established in a Member State participating in the Banking Union was in severe financial difficulties and needed to be resolved (see MEMO/13/675).

For more information on the EU response to the financial crisis, see MEMO/13/679

1 :

Communication from the Commission to the European Parliament, the European Council, the Council, the European Central Bank, the European Economic and Social Committee, the Committee of the Regions and the European Investment Bank: Action for Stability, Growth and Jobs, COM(2012) 299, 30 May 2012.

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