16 December 2013

ECB/Draghi: Introductory statement at ECON Committee hearing

Draghi reviewed recent economic and monetary developments in the euro area, and the ECB's recent monetary policy decisions. He then went on to give a progress update on the preparations for the SSM.

State of play of SSM preparations

Our internal preparations aim at ensuring that the ECB will be ready to assume its supervisory responsibilities in November 2014. We will make sure that the ECB’s monetary policy mandate focused on price stability will not be affected by considerations and decisions related to banking supervision. Internal rules are therefore being developed for the separation of monetary policy and supervisory functions: The units involved in decision-making will be clearly separated. We are putting in place an organisational set-up whereby the information flow between the two functions will be limited to a ‘need to know’ basis. However, we will avoid unnecessary duplication of structures not involved in the decision-making process. This is cost-efficient, and I am sure you will appreciate this...

An important element of our preparations is the comprehensive assessment, which comprises a supervisory risk assessment, an asset quality review and a stress test performed in cooperation with the European Banking Authority (EBA). This exercise will increase transparency by enhancing the quality of information available. It will facilitate the repair of the sector by identifying the necessary corrective actions. And it will build confidence by assuring all stakeholders that banks are fundamentally sound. It will be concluded shortly before the ECB assumes supervisory responsibilities.

The ECB convened a series of meetings in November in Frankfurt with the banks that will undergo the comprehensive assessment. These meetings were positively received and provided the useful opportunity to have a first exchange of views, to receive feedback on our communication, and respond to questions. We also explained that we would welcome prompt action from the banks, beginning now, to strengthen their balance sheets including profit retention and equity issuances.

Other elements of the comprehensive assessment are ongoing. The process for the selection of asset portfolios to be reviewed for the asset quality review was initiated in November, based on specific data collections. Furthermore, we expect to announce the key parameters of the stress test exercise together with the European Banking Authority (EBA) towards the beginning of next year.

In this context, let me explain again the treatment of sovereign bonds: The Asset Quality Review is a valuation exercise where we will apply the current regulatory framework. It is not for us to change this framework – this is a global discussion, and the Basel Committee is the right forum for it. That said, we will of course “stress” a wide range of assets as part of the stress tests: Sovereign bonds will be among them.

To ensure the credibility and rigour of the comprehensive assessment, backstops should be well specified and in place as soon as possible. The pecking order should be first private sources, then national public backstops and, as a last resort, European instruments.

Turning now from supervision to resolution, I understand you have reached agreement with the Council on the Bank Recovery and Resolution Directive. Let me again strongly welcome this agreement, as it is an important step towards to the completion of the Banking Union.

However, for the credibility of the Banking Union, another step must be taken too: The SSM needs a strong and credible Single Resolution Mechanism as its counterpart. Responsibilities for supervision and resolution need to be aligned at the European level. Thus, I urge you and the Council to swiftly set-up a robust Single Resolution Mechanism, for which three elements are essential in practice: a single system, a single authority, and a single fund. We should not create a Single Resolution Mechanism that is single in name only. In this respect, I am concerned that decision-making may become overly complex and financing arrangements may not be adequate. I trust that the European Parliament, together with the Council, will succeed in creating a true Banking Union.

Full statement

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