From National Banking Supervision to a Centralized Model of Prudential Supervision in Europe?
| Date | 01 March 2014 |
| Author | Gianni Lo Schiavo |
| Published date | 01 March 2014 |
| DOI | 10.1177/1023263X1402100106 |
| Subject Matter | Article |
110 21 MJ 1 (2014)
FROM NATIONAL BANKING SUPERVISION
TO A CENTRALIZED MODEL OF
PRUDENTIAL SUPERVISION IN EUROPE?
e Stability Function of the
Single Supervisory Mechanism
G L S*
ABSTRACT
e Single Supervi sory Mechanism is an evolutionary reform for the supervis ion of credit
institutions in Europe. It establishes a c entralized supervision for credit institutions un der
the mandate of the European Central Bank (ECB). e founding Regulation, adopted in
October 2013, provides for new and exten sive tasks for the ECB and powers of supervision
over credit institutions established participating Member States. While many challenges
are open to debate, this paper contends that the SSM will provide the essential tools to
shape a new Stability Union where institutionalization, centralization, integration, and
top-down supervision take place. However, it is still essential that the ECB exercises its
mandate correctly and is not reluctant as to the exercise of its powers. is article will
examine some critical SSM regulatory features. ese suggest that the SSM will be an
essential structure to create a new Stability Union. In particular, the use of the enabling
clause (Article127(6) TFEU), allocation of responsibilities between the ECB and national
authorities, and the emerging role of e uro area law are key elements showing that Europe
is converging towards a new model of Europ ean nancial stability.
Keywords: credit institutions; European Central Bank; nancial stability; Regulation
1024 /2013; su perv ision
* Phd Researcher, King ’s College, London; Research Fel low, University of Florence, Florence . e author
wishes to tha nk the anonymous refe rees for their comments. A ll errors and omis sions remain my own.
From National Ban king Supervision to a C entralized Mod el of Prudential
Supervision in Europe?
21 MJ 1 (2014) 111
§1. INTRODUCTION
e economic and nancial c risis has had a great impact on the level of nancial stability
of credit institutions in Europe. e creation of a single currency and the conferral of
extensive monetary powers to the European Central Bank (ECB) did not correspond to
the creation of a centrali zed level of supervision over credit institutions in t he euro area.
Prior to the outbreak of the crisis, the nancial supervisory architecture in Europe
remained substantial ly national. e architecture of nancial stabil ity was based largely
on national supervision, national resolution, and national safety nets.1 e recent
na ncial and sovereign debt crisis has shown that the European ban king system is still
vulnerable and t hat the liquidity or the solvabil ity of credit institutions2 ca n easily spread
towards other bank s and to the real economy in Europe. is generates many di culties
for the stability of t he system as a whole and for the single currency as such.
From the second half of 2012, an important process of reform for European credit
institutions has taken place: the Banking Union.3 is process will ‘make a qualitative
improvement in nancial stabi lity and con dence i n the Euro Area in particu lar’.4
At present, many challenges are open to debate and it remains to be seen how a
‘genuine’ Banking Union wi ll evolve.5 Very recently, the European legislator succeeded
in adopting a new instit utional set-up for a common level of supervision in the euro area
with the creation of t he ‘Single Supervisory Mechan ism’.6
is article assesses the sem inal reform to establis h the Single Superv isory Mechanism
and argues that the conferral of new supervisory functions to the European Central
Bank attempts to str ucture part of a new Stabilit y Union. is article wil l discuss to what
extent the Single Super visory Mechanism (the SSM) aims to inst itutionalize the level of
supervision at European level, to a llocate responsibility at a central level, to integ rate the
single market for bank s and to centralize superv ision in a top-down fashion. It concludes
that the SSM has the potentia l to become an essential component for the establishment
of a new model of Stability Union.
is paper is structured as follows. In the rst part, I will identify what I believe a
Stability Union is and I wi ll indicate what the normative components of a Stabilit y Union
1 R. Goyal et a l., ‘A Banking Union for the Euro A rea’, IMF Sta Discussion Note (2013), p.7.
2 roughout the article I will make use of the word ‘credit institution’, ‘ nancial institution’ and
‘bank ’ as the ‘credit institutions’ de ned in point (1) of Article 4(1) of Regulation (EU) No 575/2013
of the European Pa rliament and of the Council of 2 6June 2013 on prudential requirements for c redit
institution s and investment rms and ame nding Regulation (E U) No 648/2012, [2013] OJ L 176.
3 See R. Lastra, ‘Banki ng Union and Single Market: Con ict or Companionship?’, 36 Fordham
Internationa l Law Journal (2013), p.1190–1224.
4 Commission Com munication, A Roadmap towa rds a Banking Union, C OM(2012) 510 nal.
5 See J. Pisani-Fer ry et al., ‘What k ind of European ban king union?’, Breugel Pub lication (2012), p.4.
6 Council Regulation (EU) No 1024/2013 of 15October 2013 conferring speci c task s on the European
Cent ral B ank c oncer nin g poli cies r elat ing to the pr udent ial s uper visi on of cr edit inst itut ions, [2013] OJ
L 287.
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