On 13 September 2012, the EU Parliament published a press release announcing that it has adopted a resolution relating to the establishment of a single EU banking supervisor. The resolution was adopted the day following the publication by the EU Commission of two legislative proposals on EU banking union.
In passing the resolution, the EU Parliament warned that EU banking supervision rules must be of “good quality”, transparent and accountable, noting that the current preferences of certain Member States “risk sending the wrong message, as well as perpetuating inefficiencies”. Presumably, this is a reference to German objections to the establishment of a single deposit guarantee scheme, seen as one of the next necessary steps on the road to full banking union, which led to this aspect of the project being shelved, as reported in the Financial Times. The EU Parliament also seem aware of the need to protect the functioning of the EU single market, an issue preying on the minds of non-eurozone EU countries, as highlighted in this FT article.
EU Council Proposal regarding a Single Supervisory Mechanism (SSM) for credit institutions
After a transitional period (see below for more details), the European Central Bank’s (ECB) powers will apply to all credit institutions, regardless of their business model or size. Member States that have not adopted the Euro will be able to participate in the SSM provided that they abide by and implement relevant ECB decisions. The EU Commission proposals give responsibility to the ECB in a number of areas regarding the supervision of Eurozone EU credit institutions, including:
- authorisation and withdrawal of authorisation;
- the assessment of acquisitions and disposals of holdings in credit institutions;
- the removal of a member of a credit institution’s management board;
- capital requirements as well as exposure, leverage and liquidity limits;
- the conducting of stress-tests;
- the initiation of early intervention measures to restore institutions which are in danger of breaching regulatory capital requirements (this is to be done in co-ordination with national resolution authorities pending the conferral of resolution powers on a European body);
- assumption of the role of host supervisor for credit institutions established in non-participating Member States which establish a branch or provide cross-border services in a participating Member State;
- assumption of the role of both home and host supervisor for credit institutions exercising the right of establishment in other participating Member States;
- assumption of the roles currently held by all participating Member States within colleges of supervisors set up to consider cross-border banking groups;
- the ability to require information from, and conduct investigations (including on-site inspections) of, credit institutions, their group companies, persons involved in or otherwise connected to their activities and national competent authorities; and
- the imposition of sanctions for breach of regulations in an amount of up to twice the profit gained or loss avoided because of the breach (where this can be determined), or up to 10% of the total annual turnover of the relevant institution in the preceding business year.
Role of National Supervisors
All tasks not specifically conferred on the ECB will remain with national supervisors. This will include responsibility for consumer protection, anti-money laundering, and the supervision of third country credit institutions establishing branches or providing cross-border services within a Member State. In addition, the day-to-day activities necessary to implement ECB decisions appear likely to be performed by national supervisors. Applications for authorisation as a credit institution within a participating Member State will also initially be administered by national competent authorities, which shall propose to the ECB whether the conditions of authorisation have been met and therefore whether the ECB should grant the authorisation.
Role of the EBA
The ECB would not take over any tasks of the European Banking Authority (EBA). Specifically, the EBA would retain responsibility for the development of a single rulebook and ensure convergence and consistency of supervisory practice.
Independence and Accountability
The ECB must maintain independence when carrying out its banking supervision role and will be accountable to the European Parliament and to the EU Council. Monetary policy tasks will be strictly separated from supervisory tasks to eliminate potential conflicts of interest between the objectives of monetary policy and prudential supervision.
Entry into force and Transition Period
The regulation creating the SSM will enter into force on 1 January 2013 (although this FT article would suggest that this deadline may be missed), and will adopt a phased approach. Although, by way of notification to an institution and its national regulator, the ECB could choose to apply its powers to any bank from the outset, it is envisaged that it will initially apply to those banks which have received or requested public financial assistance, following which it will be extend to the most systemically important banks. The ECB shall make public a list of those institutions over which it has a supervisory role before 1 March 2013. Remaining banks will fall under the ECB remit by 1 January 2014 at the latest.
The ECB shall levy fees directly on credit institutions in order to cover the costs of the SSM. The level of fees will be proportionate to the importance and risk profile of the credit institution concerned.