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(Jan 07, 2013) On December 12, 2012, the European Union (EU) Finance Ministers made progress towards a closer banking union by approving a legislative package designed to establish a single supervisory mechanism (SSM). The SSM will be composed of the European Central Bank (ECB) and national supervisory authorities and will be tasked with supervising credit institutions. (Council Agrees Position on a Single Supervisory Mechanism, CONSILIUM (Dec. 13, 2012).)

The package contains two regulations. The first, the Proposal for a Council Regulation conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions (EUROPA (Dec. 14, 2012)), assigns supervisory tasks to the ECB, and the second amends the existing regulation on the European Banking Authority (EBA), which was established by Regulation No. 1093/2010. (Id.)

To avoid potential conflict between prudential supervision and monetary policy, the ECB's monetary and supervisory functions will be distinct from each other. The ECB's main task will be to ensure the effective functioning of the SSM. Another important task is the direct supervision of credit institutions, financial holding companies or mixed financial holding companies or branches that are established in participating member States, and credit institutions established in non-participating Member States. Supervision will apply to any credit institution whose total assets exceeds €30 billion (about US$39.4 billion) or whose ratio of total assets to the GDP of the participating member State in which it is established exceeds 20%, unless the total value of its assets is below €5 billion. Credit institutions that are less significant in term of size or importance for the economy of the EU or that are significant for cross-border activities will fall outside the remit of the ECB. Such supervision will take place in cooperation with national supervisory authorities. (Regulation, art. 5.) The ECB will establish a supervisory board to draft rules for the supervisory tasks. (Id.)

The voting rules in the EBA regulation will also be changed to ensure that all EU Members participate in voting. (Id.)

It was anticipated that the package would be adopted by the end of 2012. (Id.) In a statement to the European Parliament, Mario Draghi, the President of the Frankfurt-based ECB, expressed optimism that "[l]egislation for a eurozone banking union will restore economic confidence and break the link between banks and public debt." (Benjamin Fox, Draghi Says EU Bank Union to Break "Vicious" Circle, EUOBSERVER (Dec. 18, 2012).)

Author: Theresa Papademetriou More by this author
Topic: Banks and financial institutions More on this topic
Jurisdiction: European Union More about this jurisdiction

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Last updated: 01/07/2013