European Commission Proposes Centralized Bank Supervision

Earlier this month, the European Commission published its legislative proposal outlining the creation of a single supervisory mechanism that will allow the European Central Bank (ECB) to supervise Eurozone banks.

The move would give the ECB broad-reaching powers normally held by national regulatory authorities to police banks throughout the region, laying the groundwork for a European banking union. Law firm Skadden Arps:

“The Proposal would represent a significant shift away from the supervision of individual Eurozone banks primarily by national authorities and towards enhanced European integration in the supervision of Eurozone banks under the authority of the ECB. However, the Proposal does not address key aspects of architecture that are considered by the Commission to be integral to the establishment of a European banking union, such as a common European resolution authority or a European deposit insurance scheme, which are anticipated to be introduced only after the implementation of the new common European supervisory regime.”

Three takeaways:

1. The Commission wants to move quickly:

“The Commission proposes to have the SSM in place by January 1, 2013, with a phasing-in period to facilitate a smooth transition. The current proposal envisages that from January 1, 2013, the ECB will be permitted to assume full supervisory responsibility over any bank.” (Katten Muchin Rosenman)

2. There are two separate legislative proposals:

  • “a regulation to create the SSM, which tasks the European Central Bank with prudential regulation policy and provides for non-euro countries to join voluntarily; and
  • a regulation to adapt the existing European Banking Authority Regulation (1093/2010) to ensure the preservation of the integrity of the single market and balanced decision making by the European Banking Authority.” (Orrick)

3. All member states must buy into the plan:

“In order for the Proposal to come into effect, the Council, in accordance with special legislative procedure, must unanimously approve the Commission’s Proposal after consultation with the European Parliament and the ECB. This means that the Proposal must be approved unanimously by all EU member states.” (Skadden Arps)

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