SUPERVIZIJA U EVROPSKOJ MONETARNOJ UNIJI

Izvor: ECB Banking supervision website

(https://www.bankingsupervision.europa.eu/home/html/index.en.html)

ECB Banking Supervision at a glance

4 November 2016

The ECB started supervising euro area banks two years ago, on 4 November 2014. Take a
look at the infographic below to find out more about the objectives and functions of ECB
Banking Supervision.

19 participating countries

Objectives of banking supervision

Financial integration and stability

Safe and sound banking system

Consistent supervision of banks

The Single Suporvisory Mechanism (SSM)

More than 900 supervisory staff at the ECB

More than 4,700 supervisors from national authorities

Supervisory Board decisions in 2015

More than 1500 decisions in total

921 Authorisation procedures

213 SREP Decisions (Supervisory Review and Evaluation Process)

Supervised banks(as of 31 May 2016)

129 significant banks under direct ECB supervision

3,500 less significant banksunder national supervisionof euro area

18%

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Single Supervisory Mechanism

The Single Supervisory Mechanism (SSM) refers to the system of banking supervision in
Europe. It comprises the ECB and the national supervisory authorities of the participating
countries.
Its main aims are to:
ensure the safety and soundness of the European banking system
increase financial integration and stability
ensure consistent supervision
The SSM is one of the two pillars of the EU banking union, along with the Single Resolution
Mechanism.
Banking union

Why do we need European banking supervision?

The recent financial crisis has shown how quickly and forcefully problems in the financial
sector can spread, especially in a monetary union, and how such problems directly affect
people across the euro area.
The purpose of European banking supervision is to help rebuild trust in the European banking
sector and increase the resilience of banks.

What is the ECBs role?

As an independent EU institution, the ECB oversees banking supervision from a European
perspective by:
establishing a common approach to day-to-day supervision
taking harmonised supervisory actions and corrective measures
ensuring the consistent application of regulations and supervisory policies
The ECB, in cooperation with the national supervisors, is responsible for ensuring European
banking supervision is effective and consistent.

What does banking supervision entail?

The ECB has the authority to:
conduct supervisory reviews, on-site inspections and investigations
grant or withdraw banking licences
assess banks acquisition and disposal of qualifying holdings
ensure compliance with EU prudential rules
set higher capital requirements (buffers) in order to counter any financial risks
Supervisory cycle

Who is supervised?

Directly supervised banks

The ECB directly supervises the 127 significant banks of the participating countries. These
banks hold almost 82% of banking assets in the euro area.

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The decision on whether a bank is deemed significant is based on a number of criteria.

Criteria for determining significance

What makes a bank significant?
The criteria for determining whether banks are considered significant - and therefore under
the ECB's direct supervision - are set out in the SSM Regulation and the SSM Framework
Regulation. To qualify as significant, banks must fulfil at least one of these criteria.
The ECB can decide at any time to classify a bank as significant to ensure that high
supervisory standards are applied consistently.

Significance criteria

Size the total value of its assets exceeds 30 billion

Economic
importance for the specific country or the EU economy as a whole

the total value of its assets exceeds 5 billion and the ratio of its cross-
Cross-border border assets/liabilities in more than one other participating Member
activities State to its total assets/liabilities is above 20%

Direct public
financial it has requested or received funding from the European Stability
assistance Mechanism or the European Financial Stability Facility

A supervised bank can also be considered significant if it is one of the three most significant
banks established in a particular country.

Change of significance status

The ECB conducts regular reviews of all banks authorised within the participating countries.
The status of banks may change: either through normal business activity or due to one-off
events such as mergers or acquisitions. In such cases, the ECB and the national supervisors
involved coordinate the transfer of supervisory responsibilities.
A change in supervisory status can mean a change in the amount of the annual supervisory
fees to be paid to the ECB.

Change from less significant to significant

If a less significant bank meets any of the criteria for the first time, it is reclassified as
significant. The national supervisor then hands over responsibility for direct supervision to the
ECB.

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Change from significant to less significant
If a significant bank fails to meet the criteria for three consecutive years, it can be reclassified
as less significant. Direct supervisory responsibility for it then returns to the relevant national
authority.

Ongoing supervision of the significant banks is carried out by Joint Supervisory Teams
(JSTs). Each significant bank has a dedicated JST, comprising staff of the ECB and the
national supervisors.
Joint Supervisory Teams

Indirectly supervised banks

Banks that are not considered significant are known as less significant institutions. They
continue to be supervised by their national supervisors, in close cooperation with the ECB.
At any time the ECB can decide to directly supervise any one of these banks to ensure that
high supervisory standards are applied consistently.

Which countries participate?

All euro area countries participate automatically in the SSM.
Other EU countries that do not yet have the euro as their currency can choose to participate.
To do so, their national supervisors enter into close cooperation with the ECB.
ECB Decision governing the procedures for close cooperation
Cooperation with non-participating countries
For those EU countries that are not participating in the SSM, the ECB and the relevant
national supervisors may set out in a memorandum of understanding how they will cooperate
on supervisory matters.

Banking union
The banking union is an important step towards a genuine Economic and Monetary Union. It
allows for the consistent application of EU banking rules in the participating countries. The
new decision-making procedures and tools help to create a more transparent, unified and safer
market for banks.

Why the banking union?

The need for a banking union emerged from the financial crisis of 2008 and the subsequent
sovereign debt crisis. It became clear that, especially in a monetary union such as the euro
area, problems caused by close links between public sector finances and the banking sector
can easily spill over national borders and cause financial distress in other EU countries.
The purpose of the banking union is to make European banking:

more by consistently applying common rules and administrative standards for

transparent supervision, recovery and resolution of banks

by treating national and cross-border banking activities equally and by

delinking the financial health of banks from the countries in which they
unified are located

safer by intervening early if banks face problems in order to help prevent them

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The purpose of the banking union is to make European banking:

from failing, and if necessary by resolving banks efficiently

Commission communication: A roadmap towards a banking union

The elements of the banking union

The banking union has two pillars:
Single Supervisory Mechanism (SSM)
Single Resolution Mechanism (SRM)
The two pillars rest on the foundation of the single rulebook, which applies to all EU
countries.
Single Supervisory Mechanism
The Single Supervisory Mechanism is a new system of banking supervision for Europe. It
comprises the ECB and the national supervisory authorities of the participating countries.
Single Supervisory Mechanism
Single Resolution Mechanism
The main purpose of the Single Resolution Mechanism is to ensure the efficient resolution of
failing banks with minimal costs for taxpayers and to the real economy. A Single Resolution
Board will ensure swift decision-making procedures, allowing a bank to be resolved over a
weekend. As a supervisor, the ECB will have an important role in deciding whether a bank is
failing or likely to fail.
A Single Resolution Fund, financed by contributions from banks, will be available to pay for
resolution measures.
Single Resolution Mechanism
Single rulebook
This set of rules provides legal and administrative standards to regulate, supervise and govern
the financial sector in all EU countries more efficiently. It includes rules on capital
requirements, recovery and resolution processes and a system of harmonised national Deposit
Guarantee Schemes.
Common Deposit Guarantee Scheme
The package of EU laws under the single rulebook applies to all EU countries. The banking
union ensures that these rules are implemented consistently across the euro area and in other
participating countries.

European System of Financial Supervision

The European System of Financial Supervision (ESFS) is a network centered around three
European Supervisory Authorities (ESAs), the European Systemic Risk Board and national
supervisors. Its main task is to ensure consistent and appropriate financial supervision
throughout the EU.
As the European banking supervisor, the ECB closely cooperates with the ESAs, especially
the European Banking Authority (EBA).
The ESFS covers both macro-prudential and micro-prudential supervision.

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Macro-prudential supervision
Macro-prudential supervision involves oversight of the financial system as a whole. Its main
aim is to prevent or mitigate risks to the financial system.
European Systemic Risk Board
The European Systemic Risk Board (ESRB) is responsible for macro-prudential supervision
of the financial system in the EU.
Although not part of the ECB, the ESRB is based at the ECBs offices in Frankfurt am Main,
Germany, and the ECB ensures its Secretariat.
Tasks
The main tasks of the ESRB are:
collecting and analysing relevant information to identify systemic risks
issuing warnings where systemic risks are deemed to be significant
issuing recommendations for action in response to the risks identified
monitoring the follow-up of warnings and recommendations
cooperating and coordinating with ESAs and international fora
Composition
The President of the ECB is also the Chair of the ESRB.
The ESRB brings together representatives of the national central banks of EU countries and
the Chairs of the three European Supervisory Authorities.
European Systemic Risk Board

Micro-prudential supervision
Micro-prudential supervision refers to the supervision of individual institutions, such as
banks, insurance companies or pension funds.
European Supervisory Authorities
The ESAs are the:
European Banking Authority (EBA)
European Insurance and Occupational Pensions Authority (EIOPA)
European Securities and Markets Authority (ESMA)
Tasks
The ESAs work primarily on harmonising financial supervision in the EU by developing the
single rulebook, a set of prudential standards for individual financial institutions. The ESAs
help to ensure the consistent application of the rulebook to create a level playing field. They
are also mandated to assess risks and vulnerabilities in the financial sector.

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Composition
Each authority has a Chair who represents the organisation. However, operational decisions
are taken by their respective Board of Supervisors, which are composed of representatives of
the national supervisors of each country.
Joint bodies
Board of Appeal
The Board of Appeal is an independent body responsible for appeals by those affected by
decisions of the three ESAs.
It is composed of six members and six alternates, appointed by the ESAs.
Joint Committee
The Joint Committee of the ESAs ensures cross-sectoral consistency in the development and
application of the single rulebook.
Representatives of each of the three ESAs participate in meetings of the Joint Committee,
thereby ensuring cooperation and a regular exchange of information.

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Izvor: https://www.project-syndicate.org/commentary/mergers-europe-banking-system-
by-xavier-vives-2016-09

XAVIER VIVES
SEP 23, 2016 1

The Promise of Bank Mergers

BARCELONA The banking business has fallen on hard times. The combination of
persistent low interest rates, increasing regulatory compliance costs, and the rise of new
competitors taking advantage of financial technologies (fintech for short) has produced, in
Europe in particular, excess capacity and low profitability and a strong temptation to merge.
In a difficult market, mergers by enabling banks to cut costs, share information-technology
platforms, and increase market power, thereby relieving pressure on margins and rebuilding
capital make sense. And the banks know it. Witness the recent merger talks between
Deutsche Bank and Commerzbank, both of which have faced huge declines in market
capitalization.

So a wave of mergers may be on the way. The question is whether that approach really can
solve banks problems and benefit society.
To be sure, mergers and acquisitions are not always a matter of escaping trouble. In fact,
M&A activity both the number and size of transactions was picking up before the 2008
global financial crisis, including across borders within and beyond the eurozone. After
peaking in 2007, such activity diminished, as domestic restructuring took precedence,
particularly in countries such as Greece and Spain, which had to implement difficult
adjustment programs.

Moreover, the M&A approach does not always work. In October 2007, a consortium formed
by the Royal Bank of Scotland, Fortis, and Banco Santander acquired ABN AMRO the
worlds biggest bank takeover to date. RBS and Fortis failed soon after and had to be rescued.
Nonetheless, supervisory bodies favor mergers to save banks in trouble. Competition
authorities tend to be more reluctant, recognizing the danger that large-scale mergers can
consolidate an anti-competitive market structure, while creating even more too big to fail
banks that may cause financial instability in the future. But they are often overruled or
compelled to acquiesce. The US Department of Justice agreed to the merger between Wells

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Fargo and Wachovia, among others, soon after the 2008 financial crisis, and the UK Office of
Fair Trade was overruled in the merging of HBOS and Lloyds.

Competition is not the only source of merger-related tension among authorities. There is also
friction between national supervisors, who prefer domestic mergers, and supranational
supervisors, who prefer cross-border mergers within their jurisdiction (the eurozone, in the
European Central Banks case). The benefits of cross-border consolidation are that market
power is diluted in a large market, and more diversification is obtained, though these gains
come at the price of weakened cost synergies.

From the banks perspective, cross-border mergers may potentially be the better option, as
long as they occur within a single supervisory framework. That way, they can benefit from
common supervision and resolution. The eurozones new supervisory framework, supervised
by the ECB and possessing a common resolution authority, reflects this recognition of the
benefits of cross-border mergers.

But Europe lags when it comes to such mergers, owing to a broader lack of financial
integration. Indeed, in the European Union, member countries own banks tend to be the
dominant players in the domestic market say, BNP Paribas in France or UniCredit in Italy.
In the United States, by contrast, the same large banks such as Bank of America, JPMorgan
Chase, and Wells Fargo tend to dominate a large number of different states.
US banks have had more space to diversify. For European banks which must navigate vast
differences in culture, language, and law in pursuing cross-border mergers this has been
much more difficult, especially because many of them also need to cut overcapacity
drastically. As a result, in the near term, European banks are more likely to pursue domestic
or, at most, regional consolidation.

For the United Kingdom, which voted in June to Brexit the EU, the situation is particularly
complicated. The UK long benefited from an open policy on acquisitions by foreign banks,
which allowed, for example, the Spanish Santander Group to bid for Britains Abbey National
in 2001.

But Brexit will probably move supervision of UK-based banks out of the EU framework,
raising the cost of cross-border deals and implying a loss to British consumers. As the UK

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banking sectors competitiveness suffers, the temptation to return to the kind of light-touch
regulation that enabled the crisis in the first place could intensify.

As for the rest of Europes banks, now might be the time to consider the merger option.
Mergers are no silver bullet, but they could help to alleviate serious problems relatively
quickly though, in the longer term, the banks would still have to tackle the legacy of heavy
and rigid structures and rebuild their reputations, with a strong focus on consumer service and
fairness.

At the same time, if a merger strategy is to work for the good of society, competition must be
preserved. If incumbents simply continue to get larger, blocking new competitors from
entering the market, they will end up facing intrusive regulatory compliance programs and
higher capital requirements. New market entrants would have more flexibility and thus might
be able to offer new, more appealing deals to customers.

This is why bank supervision and competition policy must work in tandem to ensure a level
playing field. On one hand, regulations must apply to all firms performing banking functions,
including new fintech institutions. On the other hand, implicit subsidies to too-big-to-fail
banks must be dropped.

Bank mergers hold much promise, particularly in Europe. To realize their potential will
require the right policy mix, focused on consumer protection and fair competition. Europes
banks and banking authorities will need to step up their game.

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