European Central Bank finalises criteria for deciding which banks it will directly supervise

Out-Law News | 28 Apr 2014 | 4:36 pm | 2 min. read

The European Central Bank (ECB) has published the criteria by which it will decide whether a eurozone bank is "significant" and therefore become subject to direct supervision by the ECB when it becomes the single regulator for Europe's largest credit institutions.

Eurozone banks, or groups of banks, with total asset values exceeding €30 billion will be classed as significant under the framework, the ECB has confirmed.

A bank will also be classed as significant if the ratio of its total assets exceeds 20% of the GDP of the eurozone member state in which it was established, unless the total value of its assets is below €5 billion.

If the institution is among the three largest credit institutions in its member state it will also be deemed to be significant, under the Single Supervisory Mechanism (SSM) framework.

The ECB says the criteria reflect the importance of a bank to its member state, the EU as a whole or the significance of its cross-border activities.

The ECB is the central bank for the euro, Europe's single currency, and it is tasked with maintaining the euro's purchasing power and securing price stability in the euro area. Following the recent financial crisis, EU member states' finance ministers agreed to appoint the ECB the single regulator for the biggest banks in the euro zone, as part of a European "banking union".

Under the new measures the ECB is currently conducting a Comprehensive Assessment of the eurozone's largest financial institutions, which is says is designed to "enhance the transparency of the balance sheets of significant banks, trigger balance sheet repair where necessary, and repair investor confidence". 

The ECB is currently studying the assets and standing of almost 128 banks in eurozone countries whose names it published last year, to assess whether they should be among those significant institutions to come under the direct supervision of the ECB.  The list represents around 85% of total banking assets in the eurozone area, according to the ECB. This includes 24 banks in Germany and 13 banks in France.

Under the new system of supervision, the ECB may decide at any time to take responsibility for a "less-significant credit institution" it said.

A spokesman for the ECB told Out-Law.com yesterday that the list may contain fewer banks than the 128 so far listed.

The newly-published SSM framework also finalises rules for how the ECB will supervise the eurozone banks when it takes up its new role. They allow for the creation of joint supervisory boards made up of ECB representatives and national competent authorities (NCAs) of participating EU countries.

"The SSM Framework Regulation lays the basis for the work of the SSM when it takes over as supervisor of euro area banks in November 2014," said a statement by the ECB. "This is an important milestone in the set-up of the SSM which is being delivered as scheduled."

The ECB added that the SSM Framework Regulation reflects "comments received from interested parties during a public consultation". The central bank has also published a Feedback Statement, responding to comments it received during the public consultation process, along with the SSM Framework Regulation.