The European Commission announced today a set of proposals for a Single Supervisory Mechanism (SSM), conferring to the European Central Bank, (ECB) the responsibility over tasks such as authorizing credit institutions, compliance with capital, leverage and liquidity requirements.
Describing them as "an important step in strengthening the Economic and Monetary Union (EMU)", the Commission proposes that the SSM should be in place by January 1 2013.
The Commission considers these proposals as necessary as "there are currently vulnerabilities in the banking sector which have a negative impact on the sovereign debt crisis."
The package includes a regulation conferring strong powers on the ECB for the supervision of all banks in the euro area, with a mechanism for non-euro countries to join on a voluntary basis.
The proposals also include a regulation aligning the existing regulation on the European Banking Authority to the new set-up for banking supervision in order to make sure that EBA decision-making remains balanced and that EBA continues to preserve the integrity of the single market and a communication outlining the Commission`s overall vision for the banking union, covering the single rulebook and the single supervisory mechanism, as well as the next steps involving a single bank resolution mechanism.
"Specific supervisory tasks will be shifted to the European level in the Euro area, notably those that are key to preserving financial stability and detecting viability risks of banks", the Commission notes.
Under the Commission proposals, the ECB will become responsible for tasks such as authorizing credit institutions; compliance with capital, leverage and liquidity requirements; and conducting supervision of financial conglomerates and will be able to carry out early intervention measures when a bank breaches or risks breaching regulatory capital requirements by requiring banks to take remedial action.
The Commission points out that the role of the EBA will be similar to today as it will continue developing the single rulebook applicable to all 27 Member States and make sure that supervisory practices are consistent across the whole Union.
As for the implementation of these proposals, the Commission proposes they should be in place by January 1 2013, allowing a phasing-in period for the smooth transition to the new mechanism.
As a first step, as of 1 January 2013, the ECB will be able to decide to assume full supervisory responsibility over any credit institution, particularly those which have received or requested public funding, whereas as of July 1 2013 all banks of major systemic importance will be put under the supervision of the ECB.
The Commission notes that the phasing-in period should be completed by 1 January 2014 when the SSM will cover all banks.
Furthermore, an effective Single Supervisory Mechanism for the banks in the euro area is a precondition of the implementation of 29 June Euro area Summit proposal allowing the banks in the euro area to be directly recapitalized by the European Stability Mechanism, which if implemented, could alleviate the member-states from shouldering the cost of the recapitalization of their banking sector.
