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04 November 2015

ECB: One year ECB Banking Supervision

Mario Draghi said that "there can only be a single money if there is a single banking system". Nouy and Lautenschläger outlined the future challenges and past achievements of the SSM.

One year ECB Banking Supervision


Speech by Mario Draghi, President of the ECB, at the ECB Forum on Banking Supervision, 

[...] To ensure that deposits are truly as safe everywhere across the euro area, the likelihood that a bank fails has to be independent of the jurisdiction where it is established. Resolution has to follow the same process in the event that a bank fails. And, when push comes to shove, depositors must be afforded similar protection wherever they are located.

Fundamentally, this was and remains the agenda of Banking Union. And it is why Banking Union was conceived with three pillars: a single supervisory mechanism, a single resolution mechanism, and a uniform deposit insurance scheme, which remains to be specified. For money to be truly one, we need all three. Supervision had to come first, not because it was the easiest to establish, but because it was the necessary condition to proceed with the other pillars of Banking Union.

That the SSM was established at the ECB owes much to circumstances. There are benefits in the current set-up, but that was not of vital importance. What was of absolutely vital importance, however, is that the SSM was established. In a fiat money system with fractional reserves, sound and uniform supervision is essential to there being a sound and single money.

It is now high time that these other aspects of banking union are also completed. Otherwise, we would make the same mistake that was made when the euro was introduced. Back then the consequences of having a single currency were not fully reflected in the Union’s institutional design. Internal inconsistencies made our union much more vulnerable than it needed to be when an external shock hit it.


If the SSM is of great importance to the singleness of money, it is also greatly important to the singleness of the market. The single market is, as the euro, a central and irrevocable creation of the European Union. But, as is the case for the euro, its irrevocability, to remain unquestionable, needs being buttressed by appropriate and credible institutions. [...]

The importance of the SSM to uphold the single market serves as a reminder that the objective of having a robust supervisor is not just to make banks safe. The objective is to make banks safe so that they can safely access resources and use them to fund innovation, investment, and growth. Similarly, creating a single supervisor was not an objective per se. But it was necessary so that the integrity of the single banking market is not questioned.

What I have said of banking can be extrapolated to other areas of finance, which is one reason why, alongside Banking Union, the Capital Markets Union, championed by Commissioner Hill, also needs to be implemented fully and as quickly as practical. [...]

Full speech

Introductory remarks


Speech by Danièle Nouy, Chair of the Supervisory Board of the Single Supervisory Mechanism

1. Main achievements of the first year

First, we shaped the Single Supervisory Mechanism (SSM) as a new European institution which was part of the ECB. [...] 

In the ten-month preparatory period, we also did the “sonogram” – the first health check of the banks that were likely to fall under our direct supervision – through the comprehensive assessment. [...] 

Allow me to highlight some concrete examples where the leap forwards in terms of efficiency and consistency of European banking supervision has been particularly impressive.

The first example is our full round of annual supervisory assessments of the banks – the so-called “Supervisory Review and Evaluation Process” or SREP. [...]

One of the main challenges this year has been to adequately play our role in the Greek crisis. [...]

While entering into the day-to-day practice of European supervision, we quickly found out that harmonisation of supervisory practices in the SSM could not happen without a harmonisation of the rules. [...]

2. The road ahead

A number of important regulatory measures will shortly come into force and will have a significant impact on the banks we supervise, like the total loss-absorbing capacity (or TLAC) or the full implementation of the Bank Recovery and Resolution Directive (BRRD). It is also our job to ensure – in close cooperation with the Single Resolution Board – a transition that is as smooth as possible to these new standards and also to the ones still to come in the next years. [...]

In the first semester of 2016, we will participate in the EU-wide stress test that will be coordinated by the European Banking Authority. At the global level, the strategic review of the Basel capital framework will continue. [...]

We will also keep playing our part in the rest of the banking union. The Single Resolution Board (SRB) has recently been established and will also soon be fully operational. It is of the essence for the functioning and the coherence of the banking union that we cooperate actively and efficiently with the SRB. [...]

Full speech

One year of SSM


Speech by Sabine Lautenschläger, Member of the Executive Board of the ECB and Vice-Chair of the Supervisory Board of the Single Supervisory Mechanism, at an international conference on 
"One year of SSM effective and efficient supervision in a volatile world?"  organised by the Institute of Law and Finance, Frankfurt

There are still a lot of challenges ahead of us, which we have to face and address.

  • Firstly, there are issues for which we still lack a common approach. For example, what are our supervisory expectations regarding banks’ liquidity risk management? What contingency planning do we expect from banks for outsourced services?
  • To answer these questions, we will establish common administrative practices via the already described process of collecting national and international best administrative practices, of benchmarking concepts and by taking into account the lessons learnt from the crisis.
  • Second, we need to further refine our benchmarking by using the knowledge we gained last year. Last year, we had to be tough on banks and on us to collect a lot of harmonised quantitative as well as qualitative information. This was necessary to lay the foundation for our work and to exploit that we are one of the biggest supervisors of the world. We are exceptionally well placed to look for the best practices and to identify emerging risks by using our unique database.
  • Good benchmarking combines strong analysis and data-driven assessment with expert judgement. It allows taking into account the specificities of individual banks while still fostering consistency of assessments across banks and countries. Good benchmarking looks at risks from multiple perspectives and helps to develop a deep, holistic understanding of each institution’s overall risk profile and viability.
  • Third, we need to further analyse in detail and for each topic individually where we are able to create a harmonized approach within the SSM, where we are able to remove uneven playing fields. We already did so for the options and national discretion. In November we will consult on the legal text we drafted for executing the discretion given to us regarding the 122 OND identified and decided upon by the SB.
  • Apart from the famous ONDs, the current legal environment in which we operate is characterised by many different interpretations and national gold plating. In this context, we face a particular challenge. It goes without saying that the SSM applies national law; consequently, the SSM is not always able to ensure a level playing field when national laws diverge. Things get even more difficult when national supervisory practices are transferred into national law limiting the usual range of discretion needed by a supervisor to correctly do his job. These new national rules risk not removing but creating new elements of fragmentation and supervisory arbitrage.

Full speech


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