Guido Ravoet, chief executive of the European Banking Federation, says a single supervisory mechanism will achieve high-quality supervision of EU banks and smooth the path towards a single market in financial services.
The proposal for a single supervisory mechanism (SSM) is the first step towards a banking union, which is targeted at enhancing the financial stability of the European banking sector.
The SSM aims to reverse the trend towards national supervisors by creating further supervisory integration within the European Union. Furthermore, it is a pre-requisite for the direct recapitalisation of troubled eurozone banks.
Strengthening the single market in financial services via further supervisory integration in the EU is a main priority for the European Banking Federation (EBF). However, it is important that the set-up for further financial integration is correctly established right from the outset and adapted to already existing supervisory structures at European and national levels.
The role of the European Banking Authority (EBA) should remain one of ensuring convergence in supervisory rules and practices across the 27 EU member states with particular focus on continuing to enforce and strengthen the single rulebook, a necessary backbone for the single supervisor.
Furthermore, the division of tasks and responsibilities between national supervisors and the SSM needs to be transparent and well defined, so that it is clear for banks which supervisor it will deal with in any given situation.
The EBF is in favour of an SSM that covers all eurozone banks, but one that leaves the day-to-day supervision to national supervisors to allow for an effective and smooth operation of banks' daily business.
Four components of a banking union
The proposal for a single supervisory mechanism launched in September 2012 is one of the four building blocks of the banking union, the other three being a single rulebook, a single resolution scheme and a single deposit guarantee scheme.
Together these building blocks aim to create an integrated financial framework and to enhance the financial stability of the eurozone banking sector. The banking union is to be seen as part of a bigger toolbox presented in the Van Rompuy report 'Towards a Genuine Economic and Monetary Union' that will address the eurozone economic and financial crisis.
The establishment of a single supervisor is the first and most pressing step towards the establishment of a banking union as it is a necessary precedent for using the European Stability Mechanism (ESM) to recapitalise banks directly.
On the three other building blocks, the European Commission has called for a swift finalisation by the end of 2012 of the proposals on Capital Requirements Directive (CRD IV)/ Capital Requirements Regulation (CRR) - which includes the single rulebook - the Directive on Deposit Guarantee Schemes and the Bank Recovery and Resolution Directive.
All three proposals are currently being dealt with by EU policy-makers. The finalisation of these proposals, as well as the SSM proposal, will lay the ground for further development of the banking union, where the next possible step from the European Commission would be a proposal for a single resolution mechanism.
ECB: the seat of authority
The SSM proposal establishes the European Central Bank as the single supervisory mechanism for all eurozone banks. This means that, in the role of prudential supervision, the ECB will become the competent authority for the eurozone banks. The EBF finds this to be an important step towards further integrated supervision within the European Union.
This said, however, it is paramount that decision-makers strike the right balance in order to achieve high-quality supervision, and an intelligible and transparent supervisory framework for EU banks.
The prospect of the establishment of a single supervisor resulting in a more fragmented and complex supervisory European landscape, which creates a divide within the EU and leaves European banks with lack of clarity and legal uncertainty over their supervisory authorities, should be avoided at all cost.
Key principles for effective supervision
In establishing an effective supervisory set-up, a number of principles should be taken into consideration right from the start.
It is important to stress that a prerequisite for a well-functioning SSM is a single rulebook that harmonises rules and ensures consistency across all 27 member states. This means that the
current CRD IV/CRR trilogue needs to take this into account and revert to its initial aim of maximum harmonisation.
The role of the EBA must be maintained to enforce the single rulebook for the entire single
market and to ensure convergent supervisory practices throughout the EU. The new SSM should not weaken the power of the EBA.
- The EBF recognises that over time the SSM will supervise all banks in the eurozone. However, the interim day-to-day supervision of banks, it believes, should be left up to national supervisors to ensure efficient daily supervision. In general, the division of tasks between national supervisors and the SSM needs to be more transparent and clear; no grey areas should prevail. Banks have to know who their supervisor will be and for what parts of their business. Furthermore, it is positive that the proposal offers the possibility to widen the supervisory scope to non-euro member states.
- As the ECB would become the competent authority for the eurozone member states in terms of prudential supervision, clarity and transparency must be provided for banks for in the area of national discretions and derogations granted by member states. As a consequence of the ECB becoming the prudential supervisor, it will also become home and host supervisor for prudential matters.
- For home-host issues, the EBF welcomes the prospect that for participating member states the theme of home-host cooperation will no longer be an issue, as the ECB would take over these responsibilities. However, as long as not all EU member states participate in the SSM, clear rules are needed to ensure that colleges function efficiently.
- With regard to costs, it is important that the establishment of the SSM will not result in banks paying twice, once for local supervision and again for EU supervision frameworks. Furthermore, the basis for calculating supervisory fees needs to be clarified.
- The proposed timetable for the phasing-in of the SSM proposals appears rather ambitious. The EBF believes it is crucial to ensure that the quality of supervision will not be weakened, especially in the early stages of the SSM becoming operational. There should be time to address the technical issues of a rather complex set-up; the ECB needs sufficient time to adjust to the new responsibilities. Furthermore, it is important to avoid additional burdens for the affected banks.
- The right sequencing of the composite parts of the banking union is crucial. Crisis management should be the next step after the establishment of the SSM and the adoption of a single rulebook.
- If these principles are adhered to in the establishment of a single European supervisory mechanism, this should ensure high-quality supervision of EU banks and a smooth transition towards a single market in financial services.?