Single Supervisory Mechanism
The Single Supervisory Mechanism (SSM) is a system for the prudential supervision of banks within the European Union. It was established as part of the broader framework of the Banking Union to enhance the stability and resilience of the European banking system. Here's a detailed look into its history, structure, and functions:
History
- 2012 Proposal: The idea for an SSM was proposed by the European Commission in September 2012, following the financial crisis that highlighted weaknesses in the national supervision of banks across member states.
- Legislation: The legislative process for creating the SSM was concluded in October 2013, with Regulation (EU) No 1024/2013 being adopted, officially establishing the SSM.
- Launch: The SSM became operational on November 4, 2014, marking a significant step towards the completion of the Banking Union.
Structure
The SSM comprises two main components:
- European Central Bank (ECB): The ECB is at the core of the SSM, directly supervising the most significant banks, known as 'significant institutions'. These are banks with assets over €30 billion or representing at least 20% of their country's GDP.
- National Competent Authorities (NCAs): National supervisors continue to play a role, especially for less significant banks. However, the ECB has the authority to assume direct supervision of any bank if deemed necessary.
Objectives and Functions
The primary objectives of the SSM include:
- Ensuring Safety and Soundness: Supervising banks to ensure their financial health, stability, and compliance with regulations.
- Preventing Systemic Risks: Identifying and mitigating risks that could affect the stability of the financial system.
- Enhancing Financial Integration: Promoting a level playing field for banks across the EU by applying consistent supervisory practices.
- Conducting Bank Assessments: Performing stress tests, asset quality reviews, and setting capital requirements for banks.
- Enforcement: The SSM has the power to enforce corrective measures or sanctions on banks not adhering to regulatory standards.
Decision-Making Process
- Joint Supervisory Teams (JSTs): These are composed of ECB and NCA staff, ensuring a collaborative approach to supervision.
- Supervisory Board: Proposes decisions to the Governing Council of the ECB, which makes the final decision on supervisory matters.
Impact and Challenges
The establishment of the SSM has:
- Strengthened Supervision: Centralized supervision has led to more uniform and rigorous oversight of banks.
- Challenges: It faces issues like differing national banking practices, cultural adjustments, and the complexity of managing a large number of banks across different jurisdictions.
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