The EU Banking watchdog is coming. Or is it, really?

EU banking watchdog

In 1989 European Economic Commission created the Common Banking Market. They gave birth to the so called Banking Passport, whilst duties such monitoring and regulations were reserved to the member states. In 2011 they took the first step for the unification of the banking control apparatus. Therefore, the European Banking Authority (EBA) started her operations but with little supervisory competences. In 2013 EEC will take a step further with the creation of a Single Supervisory Mechanism (SSM), the European banking watchdog. SSM won’t be a communitarian institution but one belonging to the euro zone. Of course, non-euro countries will be invited to join. And the United Kingdom will decline the invitation, accordingly. Others might follow UK’s steps. SSM will be part of the European Central Bank but she will have its very own Head.

What we know about SSM comes from their press release, as well as the conclusions reached by the EU’s Council last 13th December. Everything is still in very preliminary stages and bound to too many questions about who will be supervised, what will be supervised and how these supervisions will be enforced.

Firstly, let’s take a closer insight into the Who. The Council limited SSM’s direct supervision to those who surpassed a balance of at least 30 billion. Anyone should spot any differences between SSM’s supervision rigour and the national ones, please let small print be the one to establish some boundaries (individual banks or banking groups? Off-balance operations are or aren’t included?, etc.). Not that it matters.

On the other hand, EBA will have to “Watch over coherence in the supervisory practices”, something that won’t be easy given current disparities. The press’ estimates SSM will entail a group of two hundred banks, maybe less, among the six thousand included in EU’s census. How much they will transfer will differ among countries, though.

As per the What, it had been said SSM won’t take any role in issues such consumers’ protection or money laundering. Of course, SSM will test banks’ solvency and liquidity. Likewise, the authorization of new entities should be a local matter. It’s uncommon to see a bank born with an initial balance of more than 30 billions. But, what about bank mergers and acquisitions? Will SSM take the role of ensuring all banking norms are followed? In what of the supervisory fields would SSM be willing to take part? Or will it leave the task to the member countries? One thing is for sure. National supervisors won’t lack duties at all. But them and SSM will have to coordinate their respective tasks while keeping an eye on those areas that are left out in the shadows and not covered by anyone.

Last but not least, there’s the How. The Council stresses that SSM must follow the “most demanding Banking supervisory rules”. But, how to do that? For starters, they’ll have to hire around two hundred inspectors and a bunch of translators. However, someone in Frankfurt will have to plan the duties of local supervisors in order to prepare conclusions and proposals free of any national contamination. Might SSM be willing to embed its own group of directors in the local teams to reduce this risk? Will there be problems of double-dependency? On top of that, SSM will have to give more specific details about what are these “very demanding rules”.

The Council’s plan is that SSM takes its monitoring tasks twelve months after the legal framework had been implemented. Others say the 1st March 2014 might be the chosen date. Nonetheless, these tentative schedules would only be possible if a miracle happens during the legislative process. It’s worth pointing out that during these 12 months SSM will have to be formally founded, decide who’ll be part of its leadership, create an internal organization network and define its financing sources (it won’t be a cheap committee for sure), hiring personnel, as well as to make public a few supervisory procedures. They might run out of time.

About the Author

The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.

Be the first to comment on "The EU Banking watchdog is coming. Or is it, really?"

Leave a comment