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The ECB will work closely with member state regulators via the single supervisory mechanism |
The European Central Bank (ECB) and member state regulators have clarified the composition and role of the joint supervisory teams (JST) that will supervise the biggest eurozone banks under the incoming single supervisory mechanism (SSM). Within each JST, staff from the relevant national competent authority (NCA) will far outnumber ECB. And while decision-making will be centralised under the SSM framework, day-to day supervision will remain at the national level.
The comments were made at the International Bar Association's International Financial Law Conference on May 15, one day after the SSM Framework Regulation was published in the official journal.
Panellists stressed that the JSTs represent a joint supervisory system designed to create minimum disruption to the way banks are regulated today. This is far from a transfer of entire control to the ECB, which has sparked member state fears over losing sovereignty over their biggest banks under this first pillar of the EU Banking Union.
“Each JST will be set up and staffed in a way that is tailored specifically to suit its supervised institution's business model, risk profile, and geographical distribution,” said Mikael Stenström, head of the legislation division at the ECB's directorate general legal services.
Under the SSM Framework Regulation, the 127 eurozone banks expected to be classified as ‘significant credit institutions’ will, from November 4, be directly supervised by the ECB. It will perform these functions via JSTs.
Supervision of all other eurozone banks will remain with the NCA but under ECB control.
The JST coordinator will work for the ECB. Although he or she may not come from the supervised institution's domestic market or jurisdiction, Stenström said the JST will comprise highly-qualified supervisors from both the ECB and the NCAs, involving local and other expertise specifically needed for the supervision of a specific bank.
“This will allow the incorporation of existing local expertise, while at the same time ensuring a European view when supervising individual banks," he added.
IFLR understands the JSTs will comprise between 50 and 60 people. For the smaller teams, around 40 will come from the relevant NCA with the remainder from the ECB. But these numbers have not yet been confirmed by the ECB.
KEY TAKEAWAYS
ECB and member state regulators have clarified their respective roles in supervising significant banks under the Single Supervisory Mechanism;
The eurozone’s significant banks will be supervised by a joint supervisory team (JST) which is headed by an ECB official, but otherwise dominated by staff from the relevant national competent authority;
While ultimate decision-making and supervisory power lies with the ECB, day-to-day supervision is expected to remain at the national level;
The ECB expects to have hired each JST coordinator by the end of summer;
While some national regulators still lament the loss of their autonomy, they are dedicated to working harmoniously with the ECB to improve the supervisory framework.
New recruits
In October the ECB launched a recruitment drive to fill the 770 new supervisory positions under the SSM. More than 200 support staff are also needed to sit in other divisions.
Stenström said the ECB is confident it has invested enough to make the progress needed to have the JSTs in place
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"The ECB works closely with the NCAs so that we can learn from each other" |
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in time, and that staffing of the JSTs is progressing well. “It is expected that all the JST coordinators will have been appointed and joined the ECB by the end of the summer.” Concerns have been raised over the ECB’s ability to ensure that decisions and enforcement actions taken by new, and often junior, staff are accurate and measured. This is particularly because they will participate in a JST overseeing banks of a country other than their own.
But Stenström stressed the collaborative nature of JSTs, noting that the SSM will integrate the best practices of local supervision to the benefit of all members. “In this way, the ECB works closely with the NCAs so that we can learn from each other and this applies also when we consider issues related to enforcement," he added.
A matter of mutual respect
Despite NCAs’ extensive involvement in supervision under the SSM, Jean Guill, head of Luxembourg’s Commission de Surveillance du Secteur Financier (CSSF), made clear that ultimate supervisory authority for significant and smaller banks will be with the ECB.
"I often hear that people and even some bankers believe that it is only some banks which fall under the SSM, but it is all banks," he said.
Lamenting the new balance of power between the ECB and national regulators, he said it was obvious that the role and status of NCAs will change, just as the role and status of national central banks changed when the ECB was established in the first place.
“But if this means that bank supervision will be upgraded and improved in Europe, I am convinced this is a price that is worth paying," he added.
Also, while NCAs will no longer be autonomous under the SSM, they will gain a voice in decision-making at a European level. Their participation in the SSM supervisory board makes them part of a more powerful system
In this sense, a competent supervisory culture will depend on mutual respect.
Guill believes that the main ingredient to making the SSM a success is, as described in article 6 of the Framework Regulation, the duty of cooperation in good faith of all constituent parts of SSM.
"The SSM can only deliver better supervision of eurozone banks if NCAs are fully committed to cooperating with the ECB, and ECB gives equal treatment to each NCA," he said.
See also
ECB: how to make the banking union work