25 June 2013

BoF/Hakkarainen: Minimise the use of public money through the banking union

The SSM will operate as a system, catering for all expertise of national supervisors and at the same time possessing a strong decision-making centre. Appropriate decentralisation procedures are being planned, while preserving the unity of the supervisory system and avoiding duplication. The SSM, with the ECB at its centre, is entrusted with an extensive set of micro- and macro- prudential powers, covering all key tasks relating to the prudential supervision of credit institutions. This broad array of tasks and powers is crucial, as it is the foundation for the SSM to effectively supervise banks.

The SSM also possesses early intervention powers as they are foreseen in the draft BRR. These early intervention powers are significant relating the governance and scope of activities of institutions that start to have serious problems that can lead them to a point of non-viability.

To ensure a strong centre, the ECB’s overall responsibility for supervision within the SSM is matched by control powers over the system as a whole, as well as by very close cooperation arrangements with national authorities. What makes the SSM work truly as one system, besides the legal competence over all the banks, are the following main features:

• First, all the components of the system will have to act in accordance with a system of guidelines, ECB specific regulations and manuals of supervisory practices.
• Second, the ECB supervisory function, at the centre, will receive all the supervisory data, regarding all the banks.
• Third, the bodies at the centre of the system, at the ECB supervisory function, have the power to overtake the direct supervision of any bank or group of banks that may be considered relevant and may be the origin of systemic risk.
• Fourth, the centre supervises and monitors that overall supervisory quality is followed by national competent authorities.

In practice, a risk-based approach to supervision will be adopted. Joint Supervisory Teams will be established that will integrate ECB and national competent authority (NCA) staff into single supervisory units responsible for the conduct of the on-going supervisory activities and for preparing supervisory decisions. The Teams will be established and coordinated by ECB; there will likely be one Team for each significant banking group, but tailored to the needs of each banking group (proportionality).

A common SSM Risk Assessment System is being developed, which relies on an integrated and harmonised information base. The System will be used for addressing the capital and liquidity needs of banks in the SSM and also to direct supervisory resources (e.g. inspections’ planning) on the basis of the risk- and impact assessment.

The supervision of Nordic banking groups – such as Nordea or Danske Bank – is interesting from our perspective and in particular should the home-country authorities of these groups remain outside of the SSM. In this situation, the ECB will assume the responsibility of a host supervisor of the major subsidiaries in the euro area which are also significant banks on their own and will enter into the SSM supervision.

The practical preparation of the SSM has been well underway since last autumn. In this summer the main elements of the supervisory model and the supervisory manual should be rather developed. The same goes for the ECB Framework Regulation, which is an own regulation by the ECB setting out the main responsibilities of the ECB and national authorities and the main requirements set for banks in the SSM. Also during this summer the main features of the SSM Risk Assessment System (RAS) should be available as well as the finalised list of significant banks entering into SSM direct supervision.

During this autumn 2013 and spring 2014 the newly established SSM Supervisory Board first consults on and then adopts all the basic documents setting out the operation of the SSM, which would then start in the summer of 2014. I would like to emphasise that the Supervisory Board is the main body responsible for the supervisory functions of the SSM and the main decision-making body, even decisions are formally and finally adopted by the Governing Council of the European Central Bank. When it comes to the role of the Governing Council, it cannot alter the decisions of the Supervisory Board, but only prevent their entry into force if such a veto power is exercised, and only if strongly justified e.g. by monetary policy reasons. Hence, in the decision making as well as in the internal ECB organisation, separation of the monetary policy and supervisory functions will be realised. During 2013 and 2014 also the ECB supervisory organisation will be staffed and start their operation.

Of particular relevance for the credible start of the SSM will be the Balance Sheet Assessment (BSA) project, making sure that all major problems in asset quality are well known and sufficiently addressed before the operational start of the SSM. The BSA will also link with pan-European stress tests conducted in close cooperation between the EBA and the SSM during spring 2014. I believe it is in the interest of the countries which are not joining the SSM from the beginning, to follow the same level of standards in their own asset quality reviews as applied within the SSM.  

Full speech

© Suomen Pankki - Finlands Bank