Ignazio Angeloni

This article¹⁾ECB. I am grateful to Cécile Meys for excellent drafting support. The views expressed here are my own and should not be attributed to the ECB. This article draws largely on a speech held in Dublin on 27 November 2015, available at https://www.bankingsupervision.europa.eu/press/speeches/date/2015/html/se151127.en.html. describes the actions undertaken by the European Union towards the establishment of a Single Supervisory Mechanism (SSM), with a special focus on its rationale, on its priorities to promote the soundness and stability of the banking system across the Euro Area. This work also discusses the need to implement an harmonised regulatory framework in the estimation of bank risk and in the calibration of prudential requirements.
The global financial crisis triggered financial reforms in all major economies, but nowhere was the change as comprehensive and radical as in the euro area. In 2008, as the crisis reached its peak in the United States, the euro area still had national banking regulatory frameworks (for supervision, regulation and crisis management), with only a mild overlay of harmonisation arrangements provided by European directives and supervisory “committees” without binding powers. At the time of writing (December 2015) a euro area-wide banking supervisor has been in charge for more than a year at the European Central Bank (ECB), with the mandate of ensuring banking soundness, stability and a level playing field in the whole euro area. A single bank resolution authority is about to take responsibility for crisis management, supported by a single resolution fund. There is a legal framework for conducting supervision, the Capital Requirements Regulation (CRR), which is directly applicable to all banks in the euro area without the need for national transposition, as well as EU-wide crisis management rules, the Bank Recovery and Resolution Directive (BRRD). The launch of a European deposit guarantee scheme is still being discussed, but in the meantime the rules guiding the operation of the national schemes have largely been harmonised.
The aim of this article is not to describe all the elements of the European Banking Union. It focuses on its supervisory arm, the Single Supervisory Mechanism (SSM). In particular, it elaborates on the establishment of the SSM and the rationale behind it, as well as its priorities during its first year of operation. Special focus is placed on what the SSM has accomplished in the area of regulatory harmonisation to give rise to an effective level playing field, and on the methods it uses to assess bank risks and calibrate the prudential requirements, namely the Supervisory Review and Evaluation Process (SREP). Finally, the article provides an overview of the priorities of the SSM for the immediate future.