On 9 January 2014, the European Central Bank (ECB) published a press release announcing the appointment of four Directors General who will head the single supervisory mechanism (SSM) starting early 2014: Continue reading →
Yesterday’s meeting of finance ministers in Brussels failed to establish crucial details over bail-in according to the Financial Times. The negotiations did produce a draft compromise broadly based on Germany’s revised position (see this blog post for more details). The financing details will be left to an emergency meeting on the eve of the next EU summit in Brussels on 19 December 2013. In the event Brussels rejects the board proposal, the plans would need the approval of the European Commission or a majority vote of banking union member states.
On 2 December 2013, the Council of the European Union published a press release announcing that it has approved the Memorandum of Understanding (MoU) (15963/13) between the Council and the European Central Bank (ECB) relating to the single supervisory mechanism (SSM). A few days earlier on 30 November 2013, the Inter-institutional Agreement (IIA) between the ECB and the European Parliament on the implementation of procedures related to the SSM was published in the Official Journal of the EU (OJ).
On 20 November 2013, the European Central Bank (ECB) published a speech given by the ECB executive board member, Yves Mersch, on the ECB’s perspective on the future of the European banking union. Continue reading →
The ECB has published its legal opinion on the Single Resolution Mechanism (SRM), a short summary follows:
The SRM should include all EU credit institutions
Resolution should only be triggered by a supervisory assessment of “failing or likely to fail”
The SRM should not require new legislation, Article 114 of the Treaty should suffice as a legal basis
The ECB supports early implementation of the bail-in tool (currently 2018)
Resolution financing must be provided by the Single Bank Resolution Fund. The ECB proposes a “temporary, fiscally neutral backstop” to the SBRF in the form of a credit line supplied by Member States, but recoupable from the financial industry
The ECB seeks representation as an observer in all plenary and executive meetings of the Single Resolution Board
The opinion voices its full support for the SRM which it views as a necessary complement to the Single Supervisory Mechanism, although it considers it crucial that the responsibilities of supervisory and resolution authorities are kept distinct. The ECB regards a fully-functioning single supervisory mechanism as a vital precondition for the establishment of the SRM, it therefore strongly supports adoption of the SSM legislation during the Parliament’s current term. This being the case, the ECB voices its support for the SRM to become effective as of 1st January 2015.
The 32 page opinion contains little that is unexpected; it is notable though, for its bullish tone on scope and timing of implementation. Perhaps it may be unwise to rely on delay.
The SSM Regulation bestows supervisory powers over “significant” Eurozone banks on the European Central Bank (ECB). The assessment of whether or not a bank is “significant” will be based on:
Size – the presumption being that any bank which fulfils any of the following criteria will be regarded as significant:
the total value of its assets exceeds EUR 30 billion; or
its total assets represent over 20% of the GDP of the relevant participating Member State (unless the value of those assets is below EUR 5 billion); or
both the bank’s national competent authority (NCA) and the ECB confirm that the bank is to be regarded as “significant”;
Importance for the economy of the EU or any Member State participating in the SSM; and
Significance of cross-border activities.
Any bank which has received public financial assistance shall be regarded as “significant” as are the three most significant banks in each of the participating Member States. The assessment as to whether or not a bank is “significant” should not be conducted more often than annually.
Pursuant to the SSM Regulation, the ECB will have power over the authorisation (and withdrawal of authorisation) of banks, as well as authority in relation to early intervention and recovery planning (but not resolution). In addition, it can, inter alia:
require banks to hold own funds in excess of capital requirements;
restrict, limit or require the divestment of activities of a bank;
impose limits on variable remuneration;
impose additional reporting and liquidity requirements; or
remove members of the management body.
The ECB is due to publish a framework for the SSM by 4 May 2014, prior to assuming its supervisory role on 4 November 2014. In advance of this, it is empowered to require NCAs to provide it with relevant information from 3 November 2013, the same day on which the SSM Regulation enters into force.