Towards a banking union panel i are growth and stability compatible
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Towards a Banking Union - Panel I: Are growth and stability compatible? -. Steven Keuning Director General HR, Budget and Organisation 20 March 2013. Outline. Relevant to EU/EMU: compatibility of growth, financial stability… and financial integration

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Towards a banking union panel i are growth and stability compatible

Towards a Banking Union- Panel I: Are growth and stability compatible? -

Steven KeuningDirector General HR, Budget and Organisation

20 March 2013


Outline

Outline

  • Relevant to EU/EMU: compatibility of growth, financial stability… and financial integration

  • Supervisory lessons from the financial crisis

  • Rationale for Single Supervisory Mechanism (SSM)

  • State-of-play to establish the SSM

  • SSM: Guiding Principles

  • SSM: Key Success Factors

  • SSM: Challenges & Opportunities

  • (SSM)


Towards a banking union panel i are growth and stability compatible

Relevant to EU/EMU: compatibility of growth, financial stability … and financial integration

  • Financial integration implies:

  • Cheaper and easier cross-border payments

  • Larger variety of financial products available at lower cost (loans) or higher remuneration (e.g. internet deposit accounts)

  • More buyers and sellers on larger financial markets

  • Enhanced transmission of monetary policy decisions

  • Yet: possibly also more cross-country distress contagion and larger impact of excessive risk-taking  strengthening European supervision


Towards a banking union panel i are growth and stability compatible

Supervisory lessons from the financial crisis

  • Willingness to actin a timely and adequately strict fashion

  • Need to test resilience to (truly) adverse stress test scenarios

  • Need for independent supervision, avoiding local ‘capture’

  • Strongerrisk-based capital and liquidity requirements

  • More focus on verification and monitoring of compliance with best risk management and internal control practices

  • Cross-border dimension is crucial

    • Minimisation of home-host conflicts of interest (in a crisis)

    • Harmonisation of risk and asset quality assessment

  • Stronger interplay between micro- and macro-prudential supervision (early macro-warnings, spotting contagion risks)


  • Rationale for single supervisory mechanism

    Rationale for Single Supervisory Mechanism

    Single Supervisory Mechanism (SSM) essential to:

    • Promote sustainable growth through financial integration while containing financial instability (e.g. cross-border contagion)

    • ImproveEMU functioning: smooth monetary policy transmission and functioning of money markets; containing imbalances

    • Helpbreaking negative feedback loops between governments and banks (together with the Single Resolution Mechanism)

    • Remove any national biasof national supervisory authorities

    • Converge to the best (of the national) supervisory practices

    • Substantially reduce the supervisory ‘burden’ for cross-border banks (through the Single SSM Supervisory Manual)

    • Reduce (crisis) coordination failures among national supervisors

    • Promote reinforced coordination by European Banking Authority


    State of play to establish the ssm

    State-of-play to establish the SSM

    • 13 December 2012: ECOFIN Agreement on SSM Regulation

    • Trilogue with the European Parliament (including the EBA regulation) expected to be concluded in a few weeks

    • Adoption of the SSM Regulation by the Council and Parliament in early summer, with a possible publication and entry into force in the course of July

    • ECB decisions on SSM (organisation, staffing, location, recruitment) only after entry into force of SSM Regulation; preparation started

    • SSM begins supervision one year after entry into force


    Ssm guiding principles

    SSM: Guiding Principles

    • Effective single supervisory authority within the ECB (including macro-prudential powers, legal competence for all credit institutions)

    • Independent and accountable

    • Separationbetween ECB’s supervision and monetary policy responsibilities (e.g. decision-making by Supervisory Board)

    • Establishment as a System, with participation of National Competent Authorities (NCAs), and not a ‘college’ of NCAs

    • Leverage NCAs expertise (convergence towards the best national practices, ECB to directly supervise only (about 140) systemic banks)

    • Financing by supervised entities (level playing field across SSM)


    Ssm key success factors

    SSM: Key Success Factors

    • Ensure full and smooth cooperation between ECB and NCAs (Joint supervisory teams; strong horizontal functions)

    • Homogeneous approach to risk and asset quality assessment and supervisory requirements (e.g. Single SSM Supervisory Manual, reporting)

    • Strong on- and off-site supervision

    • Effective workflow management and well-functioning IT-systems

    • Smooth management of the transition period


    Ssm challenges opportunities

    SSM: Challenges & Opportunities

    • Time (only 18 months to set up SSM versus 4 years to set up ECB)

    • All SSM institutions’ alignment towards a truly European system, with effective reporting lines and commitment of resources

    • Utilise national experience and skills, while developing the ECB’s horizontal and specialised expertise (e.g. risks’ assessment)

    • Unlike monetary policy, there is no well-defined single overall objective; more visibility of ECB towards national public opinion

    • Reap synergiesbetween ECB’s ‘central banking’ functions (analytical capacity) and its macro- and micro-prudential supervision tasks

    • Staff recruitment, (regular) relocation (language issues?), training

    • A smooth, yet rapid transition (continuity without entrenching national approaches; balance sheet assessment)

    • Unified supervision needs a common resolution mechanism


    Towards a banking union panel i are growth and stability compatible1

    Towards a Banking Union- Panel I: Are growth and stability compatible? -

    Steven KeuningDirector General HR, Budget and Organisation

    20 March 2013


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