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ECB ‘well on track’ to assume new eurozone supervisory role

Out-Law News | 27 Aug 2014 | 3:42 pm | 1 min. read

The European banking union will “bring about less fragmentation of the banking sector”, benefit the region’s economy and “enhance confidence” in banking supervision, the chair of the European Central Bank’s (ECB) supervisory board of the Single Supervisory Mechanism (SSM) has said.

Danièle Nouy told the Cyprus newspaper Phileleftheros that preparations for the European Union’s SSM are “well on track” for when the ECB assumes its supervisory duties in November of this year.

The banking union will also “improve the transmission of the ECB’s low rates to companies and households”, Nouy said.

On supervision, Nouy said: “This is the first time ever that there will be a truly pan-European supervisor. The way the SSM has been designed ensures the effective application of the single rulebook that has been developed by the European Banking Authority (EBA), thereby ensuring the harmonisation and homogeneity of supervisory standards in Europe. By eliminating regulatory arbitrage and removing national bias, the SSM will significantly enhance confidence in banking supervision.”

The SSM was established by EU leaders in the wake of the global financial crisis to increase financial stability and integration in Europe and harmonise supervisory practices across the eurozone and other participating EU member states.

Nouy said: “By creating a level playing field and making sure that the control of banks is at arm’s length from local politics, the banking union should lead to a more resilient and efficient banking system.”

Nouy said “targeted longer-term refinancing operations” should already start finding their way into the economy as of next month to boost credit growth.

Meanwhile, the ECB’s “comprehensive assessment” process to prepare the SSM and bring about greater transparency of banks’ balance sheets and consistency of supervisory practices in Europe is also advanced, Nouy said.

By the end of this month, Nouy said the ECB will have concluded its asset quality review (AQR), “the outcome of which will be joined up with the ‘stress tests’ under a hybrid approach”.

According to the ECB, the AQR forms one of “two main pillars” of ECB's comprehensive assessment, which aims to “enhance the transparency of bank exposures by reviewing the quality of banks’ assets, including the adequacy of asset and collateral valuation and related provisions”. The second ‘pillar’, stress tests, are conducted in cooperation with the EBA and examine the resilience of banks’ balance sheets to “stress scenarios”, the bank said.

The assessment started in November 2013 and is due to end in October 2014. In November, the ECB will take over the direct supervision of up to 130 of the European Union's largest financial institutions and work with national competent authorities to oversee smaller banks.