By putting in place and finalising legislative and practical steps towards banking union, 2013 marked a quantum leap in European integration. Today, not even two years after the EU Heads of State or Government committed to build a genuine Banking Union, the two cornerstones of this ambitious project – the Single Supervision Mechanism (SSM) and the Single Resolution Mechanism (SRM) – are in place.
The SSM will create genuine European supervision, requiring the ECB to take responsibility for ensuring that the European banking sector is sound and safe. In the process of establishing the SSM, there is need further to restore the health of the banking sector and confidence in it, thereby creating the conditions for a revival of credit provision to the real economy. The ECB’s comprehensive assessment is designed for this purpose. The ECB is very conscious of the huge responsibility that ECB has been asked to shoulder, and this exercise will be executed in a credible and consistent manner.
As regards the SRM, ECB welcomes the political agreement that was reached on 20 March 2014. The intense negotiations between the co-legislators produced an SRM that is more efficient, more credible and more European. The European Parliament undoubtedly played a decisive role in achieving this outcome.
Three aspects of the agreement the ECB deems particularly important:
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First, we had insisted all along on the need for adequate funding for the Single Resolution Fund (SRF). We therefore welcome the fact that the SRF will be mutualised faster and that the pace of mutualisation will be significantly frontloaded. Taken together, this means that it will have more common firepower already in the early years, and will thus be more effective in breaking the link between banks and sovereigns, and protecting taxpayers’ money. There will also be a clear reference to establishing an enhanced borrowing capacity for the Fund, and we look forward to concrete progress being made in this field.
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A second essential requirement from the ECB’s viewpoint was the need for a swift and efficient decision-making process, allowing for the resolution of a bank over a weekend. We welcome the fact that the text now caters for a swifter procedure, ensuring timely resolution decisions.
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Finally, we note with satisfaction that the ECB as supervisor will have the primary role in deciding whether a bank is failing or likely to fail.“
In the field of financial regulatory reform more broadly, the EU has also taken key steps in 2013, with the European Parliament playing an important role. The single rulebook, which is aimed at providing a single set of harmonised prudential rules throughout the EU, will be the cement that holds together the single market for financial services. The adoption of the Capital Requirements Regulation and Capital Requirements Directive in April 2013 was therefore an essential step towards strengthening the stability and resilience of the banking sector. In parallel, banks will have to satisfy the requirements of the bank recovery and resolution directive which comes into force in 2015, by developing recovery plans, cooperating with resolution authorities and making necessary changes to capital holdings, business activities, legal and operating structures.
With these measures, we have the possibility to bring banks and financial services back to their core mandate of being at the service of the real economy and protecting savers. Therefore, it is of the utmost importance to maintain this momentum and to continue with the rapid adoption of a number of pending legislative proposals. First, the proposed regulation on indices used as benchmarks in financial instruments and financial contracts needs urgently to be adopted and implemented, as regulatory uncertainty has been one of the factors leading to banks leaving the EURIBOR panel. Second, regulatory reforms of shadow banking, in particular the Commission’s proposal on money market funds, will ensure that money market funds are safer and better managed. Third, the legislative work will have to proceed on the European Commission’s proposal on the structural reform of the EU banking sector, as it would contribute to reducing the potential fragmentation caused by different national regulations.
Beyond these pending legislative proposals, the coming months will also provide the opportunity to review a number of legislative packages adopted during the crisis:
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First, the review of the six-pack and of the two-pack will allow stock to be taken of what has been achieved and to identify gaps in the EMU architecture that still need to be filled. Mr. Constâncio trusts that with its European perspective, the European Parliament will ensure that this review will consolidate those achievements that have proven successful, while at the same time strengthening the governance framework in those areas where there is room for improvement.
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Second, the review of the European System of Financial Supervisors may enable to cater to new realities. Three years ago the creation of the European Supervisory Authorities and of the European Systemic Risk Board certainly constituted the right step at the right time. This upcoming review could be an opportune moment to reflect on how to fine-tune the regulatory and supervisory landscape in Europe to account for the changes brought about by the establishment of the SSM.
Full statement
Annual report 2013
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