15 October 2013

ECOFIN Council approves single supervisory mechanism for banking

The single supervisory mechanism (SSM) will be composed of the European Central Bank (ECB) and the supervisory authorities of the Member States. It will cover the euro area as well as non-eurozone countries that choose to participate. The ECB will have direct oversight of eurozone banks, although in a differentiated manner and in close cooperation with national supervisory authorities. It will be responsible for the overall functioning of the SSM.

The ECB will assume its supervisory tasks 12 months after entry into force of the legislation, subject to operational arrangements.

One of the two regulations adopted today confers supervisory tasks on the ECB (9044/13), whilst the other modifies regulation 1093/2010 on the European Banking Authority as concerns the EBA's interaction with the SSM (22/13).

Adoption of the legislation follows an agreement reached with the European Parliament at first reading on 19 March, and subsequent approval by the Permanent Representatives Committee, on behalf of the Council, on 18 April.

The ECB's monetary tasks will be strictly separated from its new supervisory tasks, in order to eliminate potential conflicts of interest between the objectives of monetary policy and prudential supervision. To this end, a supervisory board responsible for the preparation of supervisory tasks will be set up within the ECB. The board's draft decisions will be deemed adopted unless rejected by the ECB's governing council.

Non-eurozone Member States wishing to participate in the SSM will be able to do so by entering into close cooperation arrangements; they will have full and equal voting rights on the supervisory board.

National supervisors will remain in charge of tasks not conferred on the ECB, for instance in relation to consumer protection, money laundering, payment services, and branches of third country banks. The EBA will retain its competence for further developing the "single rulebook" for the banking industry and for ensuring convergence and consistency in supervisory practice.

The EBA regulation is amended, in particular as regards voting modalities, in order to ensure equitable and effective decision-making within the EU's single market. The amendments ensure that the countries participating in the SSM will not unduly dominate the EBA's board of supervisors.

Establishment of the SSM is a precondition for enabling the European Stability Mechanism to have the possibility to recapitalise banks directly, as agreed by eurozone heads of state and government in June 2012. The ESM currently contributes to bank recapitalisations via Member State treasuries. However, direct recapitalisation will enable the vicious circle between banks and sovereigns – which has been a salient feature of the debt crisis in Europe – to be broken.

Press release

Main ECOFIN Council results

See also SRM compromise text

President Barroso said: “It is good news that the Council has given the final sign-off to the Single Supervisory Mechanism, the first leg of our Banking Union. The Commission is ready to help in any way with the European Central Bank's intensive preparations to ensure the SSM begins its work next year. Now it is urgent to put the second leg in place by agreeing the single resolution mechanism and fund and the single rule book for bank resolution tools and deposit guarantees. These new rules will help build a stable financial sector, restore fair lending conditions across the EU and ensure that banks, not taxpayers, pay for their own mistakes. We owe it to our citizens to deliver before the European Parliament's elections in May.”

Commissioner Barnier said: “Today, the Council has given its final approval for the Single Supervisory Mechanism, the first pillar of the Banking Union. We have written regulatory history. This is a momentous step: the start of a new era for the supervision of eurozone banks. The ECB will soon take on vast new powers. Many challenges lie ahead but I am confident that it will succeed. The credibility of the banking system is at stake.

I would in particular like to acknowledge the crucial roles played by the Cypriot, Irish and Lithuanian presidencies and the European Parliament in finding this agreement. But better supervision is not enough. A Banking Union also requires action to restructure non-viable banks when necessary. That is why the supervisory system needs to be complemented by an integrated European resolution system for all countries participating in the Banking Union.

We have had a useful discussion in Luxembourg today on these issues. We must find a final agreement on the Directive on Banking Resolution for Member States and political agreement in Council on the Single Resolution Mechanism by the end of year.”

Full press release with background and key elements of the SSM

Further remarks (in French)

“The decision on the Single Supervisory Mechanism is particularly important. It will set up one of the pillars of the Banking Union and will certainly add to the credibility of the European financial system", said chair of the ECOFIN, Lithuanian Finance Minister Rimantas Šadžius. “We are efficiently moving forward. Backstop arrangements are very important not only for our work on the Single Resolution Mechanism but also for the upcoming asset quality review and stress tests.”

Full press release

© European Council