The Single Supervisory Mechanism (SSM) is a new system of supervision of credit institutions that will see a shift in responsibility from national competent authorities to the European Central Bank (ECB). When SSM enters into force in late 2014, at least the three most significant credit institutions established in Ireland will come under direct supervision of the ECB.
Which credit institutions will be subject to direct supervision by the ECB?
The SSM legislative package confers a broad range of supervisory tasks on the ECB in respect of all credit institutions established in SSM states which include, all EU Member States in the eurozone and, non-eurozone Member States which opt in to SSM.
The extent of the ECB’s supervisory responsibilities will depend on whether the credit institution is deemed to be significant. Credit institutions established in a SSM state which are deemed to be significant will be subject to direct supervision by the ECB. Credit institutions which are not deemed to be significant will continue to be supervised by national competent authorities of SSM states but they will be subject to overall supervisory oversight by the ECB.
A credit institution will be deemed to be significant if any of the following conditions are met:
- The total value of its assets exceeds €30 billion.
- The total value of its assets exceeds €5 billion and the ratio of its total assets over the GDP of the SSM state in which it is established exceeds 20%.
- It is one of the three most significant credit institutions in a SSM state.
- The national competent authority considers it to be significant with regard to the domestic economy and the ECB agrees.
- The ECB considers that it has banking subsidiaries in more than one SSM state and significant cross-border assets or liabilities.
- Public financial assistance has been requested or received in respect of it directly from the European Financial Stability Facility (EFSF) or the European Stability Mechanism (ESM).
The ECB may also decide to undertake direct supervision of any credit institution established in a SSM state that is not deemed to be significant based on the above criteria.
What powers are conferred on the ECB regarding supervision of credit institutions under SSM?
SSM confers additional powers on the ECB including general powers conferred on competent authorities under EU law and specific powers to gather information, conduct investigations, conduct on-site inspections, apply higher requirements for capital buffers than those applied by national competent authorities and impose administrative sanctions.
When will SSM come into effect?
The ECB should assume its supervisory role on 4 November 2014 but there is provision in the legislation to delay this date if it considers that it will not be ready by then.
What will be the role of national competent authorities in SSM states?
National competent authorities, such as the Central Bank of Ireland, will continue to have a significant supervisory role in respect of credit institutions after SSM comes into effect, including:
- Supervision of less significant credit institutions
- Performing supervisory tasks that have not been conferred on the ECB
- Performing preparatory and implementation tasks even where the ECB undertakes direct supervision of a credit institution
Contributed by Shane Kelleher.
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