Single banking supervision in Europe

On 4 November 2014 Europe’s Single Supervisory Mechanism (SSM) for banks started up, and the European Central Bank took on direct supervision of the most significant banks in the euro area. There are a total of 130 such banks and they hold some 82% of all the assets of the whole banking industry in the euro area. The banks operating in Estonia that are now under the direct supervision of the European Central Bank are Swedbank and SEB.

The SSM has been put in place to make sure that there is single and strong supervision of bank capital throughout the euro area. In essence, single supervision has two key functions:

  • ensuring the safety and soundness of the banking system;
  • increasing financial integration and stability in Europe.

The SSM changes the way work is shared between the supervisory authorities. The European Central Bank now has responsibility for making sure that banks in the euro area meet the capital and liquidity requirements, for issuing and revoking licences, and for approving acquisitions of major holdings in banks. Staff from national banking supervisory authorities are also involved in this work.

Banks in Estonia are supervised by the Financial Supervision Authority, the main local partner of the European Central Bank in single supervision. The Financial Supervision Authority continues to be responsible for supervising all the other banks in Estonia. The European Central Bank will in future be able to decide independently which other banks it will take under direct supervision.

Eesti Pank’s role is to continue macroprudential supervision or ensure the functioning of the banking system as a whole. This means giving opinions on the state and risks of the banking sector and helping to design the legal framework for it. The Governor of Eesti Pank is on the Governing Council of the European Central Bank, which also approves decisions on single banking supervision. The decisions are drafted by the Supervisory Board of the European Central Bank, and the Chair of the Board of the Financial Supervision Authority and the Deputy Governor of Eesti Pank among others sit on that board.

All euro area countries automatically participate in the single banking supervision and non-euro area members of the European Union can join by signing a close cooperation agreement.

Read more from Bank of Estonia website

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