European banking supervision crucial step towards safer banking

The European Parliament today adopted a series of amendments on the legislative package establishing stricter banking supervision. In addition to the Regulation establishing a Single Supervisory Mechanism (SSM), the package includes a Regulation that aligns the working of the European Banking Authority (EBA) with the new supervisory structure.

"The legislation adopted today is an essential first step towards safer banking across the EU. It will increase confidence and make sustainable economic growth possible”, said Marianne Thyssen MEP, Rapporteur on the Regulation that establishes a Single Supervisory Mechanism (SSM) for the banking sector. Thyssen’s Report on the SSM puts the European Central Bank (ECB) at the heart of the new supervisory mechanism to oversee all banks that can create systemic risks. Moreover, the ECB has powers to intervene in any other credit institution in Member States that participate in the supervisory mechanism.

Thyssen said stricter supervision is the cornerstone of an EU-wide banking union: “It will reinforce European integration, restore confidence, make the financial sector stronger and protect the economy and citizens' savings. In addition, we welcome the rapid progress that is being made on the other building blocks of the banking union. The European recovery and resolution framework for banks in trouble, which was voted on Monday in the Economic and Monetary Affairs Committee, will improve the functioning of financial markets and protect saving deposits.”

Burkhard Balz MEP, Shadow Rapporteur on the Regulation revising the working of the European Banking Authority (EBA), underlined the importance of the ECB’s accountability towards the Parliament: "The inquiry and assessment rights of the European Parliament shall help to ensure an effective and transparent functioning of the Single Supervisory Mechanism. I very much welcome that the European Parliament will be equipped with approval rights on the nomination of the Chair and Vice-Chair of the ECB Supervisory Board."

The key elements of the legislative package adopted today are:

• A new single European supervisory system will be established in which the ECB plays a key role and national watchdogs are closely involved.  The ECB has final responsibility and the power, if necessary, to intervene in any credit institution in any Member State taking part in the Single Supervisory Mechanism.
• The 17 Eurozone Member States will participate in the mechanism. Non-Eurozone Member States can opt in. To encourage Member States from outside the Eurozone to participate in the system, they have been given equal rights on the Supervisory Board.
• The ECB will be subject to strict demands as regards transparency and democratic accountability to the European Parliament when exercising its supervisory tasks.
• The ECB's supervisory tasks will be strictly separate from its monetary tasks.
• The EBA, a coordinating organ, is reinforced and adapted to the ECB becoming the new European supervisor.

As the Council is not yet able to give its formal and unanimous consent for the agreement reached (the German Parliament first needs to give the green light to the Minister of Finances), the European Parliament today only voted on the amendments but not yet the legislative Resolution. The EP will only hold its final vote in a future plenary session. This will also allow the EP to reach a satisfactory agreement with the ECB on the accountability of the ECB towards the Parliament.