24 May 2013

ECB/Constâncio: Implications of the SSM on the ESFS

While the SSM will in principle be just another supervisor around the table, its impact on the ESFS will clearly depend on how many Member States eventually decide to join. In our view, the more Member States take part, the better it will be for the functioning of the ESFS and the single market more generally.

First, having as many as possible countries in the SSM will reduce the scope for coordination failures. This will in turn facilitate the coordination function of the European Banking Authority. Second, a larger SSM is the best way to safeguard the single market in financial services. The more membership overlaps between the EU and the SSM, the more consistent will be the application of supervisory and regulatory practices. Third, broad SSM membership could diminish the distortions to the single financial market caused by the divergent fiscal positions of sovereigns, as Member States that are part of the SSM will also have access to the Single Resolution Mechanism (SRM). This presupposes, however, that the SRM is set up with strong powers, which I consider essential.

At this stage, we expect several non-euro area Member States to join the SSM. The negotiations on the SSM Regulation have satisfactorily addressed most of their concerns. However, some countries seem to require that more clarity on the functioning of the SRM is provided before they reach their final decision, in particular on the issue of a common fiscal backstop and how “out” Member States could contribute to or benefit from it. In my view, this should not be an obstacle to a positive decision because any participant country in the SSM will also participate in the SRM and benefit from it.

From the ECB’s perspective, it is essential that the SRM comprises a Single Resolution Authority and single fund financed by ex-ante and risk-based contributions from the banking sector itself. To remove any doubts over resolution financing, the fund should be able to draw on a common backstop if needed – possibly a credit line from the ESM. Any credit would be repaid via additional levies on banks and thus be fiscally neutral in the medium term. This construction raises certain institutional questions which cannot be answered today, not least related to membership of the ESM. But in our view, an approach based solely on coordination between national authorities without a Single Resolution Authority and without a common backstop would clearly not be sufficient. It would make the Banking Union significantly less attractive for non-euro area Member States, and hence less effective for the EU as a whole.

Ideally, we would like non-euro area Member States to make their intentions clear by July 2013 when the SSM Regulation is expected to enter into force.

It is unavoidable that the existence of the SSM will alter the functioning of the ESFS. This is, after all, the most significant development in financial supervision in the history of the European Union. However, I am confident that the changes brought by the SSM will strengthen the ESFS, and will overall enhance the quality and consistency of supervisory and regulatory practices across Europe. The more Member States that are involved in Banking Union, the greater these positive effects will be.

Full speech

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