CIAO DATE: 10/2013
June 2013
EGMONT – The Royal Institute for International Relations
Europe’s financial and sovereign debt crises have become increasingly interconnected. In order to break the negative feedback loop between the two, the EU has decided to create a common supervisory framework for the banking sector: the Single Supervisory Mechanism (SSM). The SSM will involve a supervisory system including both the national supervisors and the European Central Bank (ECB). By endowing the ECB with supervisory authority over a major part of the European banking sector, the SSM’s creation will result in a shake-up of the way in which the European financial sector is being supervised. Under the right circumstances, this could be a major step forward in addressing Europe’s inter-connected crises. While the creation of the SSM makes for a crucial change, it is important to understand the limits of its supervisory scope. First of all, it will not cover all EU Member States: while participation is ma ndatory for the eurozo ne countries, the other Member States have the option to join or not. Secondly, the SSM only deals with bank supervision. Supervision of the rest of the financial sector (e.g. insurance firms) remains a national comp etence. Finally, certain aspects of bank supervision that are not deemed essential for financial stability (e.g. consumer protection) remain the sole prerogative of national supervisors.
Resource link: Assessing the Single Supervisory Mechanism: Passing the point of no return for Europe's Banking Union [PDF] - 1.1M