The Single Supervisory Mechanism: Ready to take over banking supervision in the euro area?

Abstract

With the establishment of the Single Supervisory Mechanism (SSM), the euro area member states have committed themselves to transferring a considerable part of their national sovereignty with regard to banking supervision to the European Central Bank (ECB). This will have a large impact on the future role of national supervisory authorities, the supervised euro area cross-border banks and, last but not least, the ECB itself. Given the ECB's rather limited experience in the day-to-day supervision of credit institutions at the time the SSM Regulation was adopted, and considering different approaches between monetary policy and banking supervision in terms of transparency and banking industry involvement, at first sight one might be tempted to compare the ECB taking up direct banking supervision in November 2014 with a learner driver. The ECB, however, will not substitute for the supervisory work of the national competent authorities, but is intended to act as a complement to it. Moreover, the legal framework under which the SSM will operate, the envisaged organisation of day-to-day supervision, the swift facilitation of the recruitment of qualified personnel and the first experiences with public consultations do alleviate concerns that the ECB might not be able to do its job with the necessary degree of efficiency, transparency and accountability. The (lack of) incentives for non-euro area member countries to join the SSM and the comprehensive assessment, a preparatory exercise to avoid taking over legacy assets from banks supervised directly by the ECB from November 2014, have been highlighted already in this journal and are consequently not part of this paper (see Dietz, T. (2014) ‘Comment on the Single Supervisory Mechanism’, Journal of Risk Management in Financial Institutions, Vol. 7, No. 3, pp. 220–225). This paper, rather, concentrates on the concrete details of the ECB's future supervisory work and its implications for the national supervisory authorities and the institutions affected.