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ECB SSM- one bank to rule them all

The ECB today officially assumes its responsibilities as Single Supervisor in the Banking Union.  The new central bank now has responsibility for:

  • Direct supervision of the most significant banks (120) – those banks with assets >=  €30 bn.  or representing 20% or more of their home country GDP.
  • The ECB will act as the home\host authority for the cross-border activities of those banks which it directly supervises.
  • Indirect supervision of the rest (approx. 1480) via monitoring of national supervisors. The ECB is authorised to intervene directly and to issue instructions to national supervisors, which are themselves duty-bound to report decisions of consequence.

The ECB’s remit is split between supervisory and monetary agenda. The separate functions are reflected in its Governance structure which comprises a Supervisory Board and associated steering committee and a Governing Council and associated mediation process to resolve disputes with national competent authorities. Day-to-day supervision will be the responsibility of Joint Supervision Teams (JSTs) – a multinational group overseeing a single institution or small group of banks. To reduce national bias, individual JST coordinators will come from a different country from the bank\group they will be supervising; a laudable initiative, though perhaps one with short-term Tower of Babel potential.

The ECB’s mission is to ensure and enforce univocal application of the Single Rulebook in the euro area.  Typically, the Single Rulebook is composed of multiple “books”: CRD IV, CRR, the BRRD, and the DGSD. The ECBs powers over banks include inter alia:

  • Removal  of management
  • Restriction\limitation of business, divestment of groups\activities
  • Limitation of variable remuneration
  • Utilisation of net profits to strengthen capital ratios
  • Restriction\prohibition of distributions to member, shareholders, bondholders etc.
  • Imposition of liquidity requirements

Armed with unprecedented powers, today’s ascendance of the ECB to the SSM throne cements the second Banking Union “pillar” in place.  The SRM enters into force on 1 January 2015, while the SDGS is currently being phased-in between now and 2019. Unified supervision is the sine qua non of further integration, and will likely end in the dissolution of domestic paradigms, finally imposing a wider, pan-European banking model.

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