European banking supervision: key for deeper economic and monetary integration

Next week the European Parliament is planning to give its final go ahead to a legislative package establishing a new EU banking supervision mechanism. The legislative package consists of a Regulation that puts the European Central Bank (ECB) at the heart of the Single Supervisory Mechanism (SSM) and a Regulation that aligns the working of the European Banking Authority (EBA) with the new supervisory structure.

By doing so the Parliament signs off on a piece of legislation that forms the cornerstone of the so-called Banking Union, which will make banking safer across Europe, restore confidence, give an impulse to the financial sector and protect citizens' savings.

Increased supervisory powers and democratic accountability for the European Central Bank

For Marianne Thyssen, responsible for drafting the European Parliament's position on the Single Supervisory Mechanism (SSM), it is key that shifting supervisory powers to the European Central Bank (ECB) goes hand-in-hand with its increased democratic accountability towards the European Parliament. To guarantee this, an interinstitutional agreement with the ECB’s Governing Council is currently being finalised, setting out the details of Parliament’s powers of scrutiny. In addition, the ECB’s supervisory tasks have been strictly separated from its monetary tasks.

The ECB plays a key role in the SSM and has final responsibility for and the power to intervene in any credit institution in any Member State taking part in the SSM. National supervisors are responsible for banks that cannot create a systemic risk.

The European Banking Authority (EBA), a coordinating organ, is reinforced and adapted following the ECB becoming the new European supervisor.

Non-Eurozone Member States can participate 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 in the Supervisory Board. They can also opt out under strict conditions.

A European banking supervision mechanism will lead to further economic and monetary integration

Over the past years, the EPP Group has repeatedly called for the establishment of a single supervisory mechanism as this is vital to strengthening the response to the current euro and financial crisis.

High-quality and uniform European supervision will send a strong signal to the financial markets and global investors that the EU is ready and willing to support the euro by establishing complete and democratically-legitimate governance.

Ultimately, a European banking supervision mechanism will lead to further economic and monetary integration. The EPP Group now insists on the need for rapid implementation, as the SSM will make it possible to directly capitalise banks from the European emergency funds. This will put an end to the vicious circle between banks in financial trouble and governments with budgetary difficulties.

Next steps

Both Regulations in the legislative package are subject to vote in plenary next Tuesday, 10 September.