Author: Luca Ventura
ecb 2 building logo
The ECB grows up as it takes on bank supervisory powers.

On November 4 the European Central Bank will take over as the single regulator of the eurozone’s largest credit institutions. The announcement came on April 25 with the publication of the Framework Regulation for the Single Supervisory Mechanism (SSM), a draft of the technical standards that will help determine the systemically important banks subject to direct supervision.

A further advancement toward the creation of a European banking union, the SSM endeavor also marks the coming of age of the single currency. With the hiring under way of some 1,000 supervisors and support staff to take on the task, the ECB is comprehensively assessing the nearly 130 banks included in a preliminary list of the major lenders in the eurozone. Under the new guidelines, banks with total assets of more than €30 billion ($41 billion), assets over €5 billion that exceed 20% of the GDP of the member state where they were established, and credit institutions that are among the top three in their country, will be classed as systemically important. Combined, it is estimated that approximately 85% of the eurozone’s overall banking sector will come under the ECB’s direct supervision.

“Having a single supervisor is a major step forward for the euro area,” says Holger Sandte, chief euro analyst at Nordea. “Although in hindsight, it’s probably fair—but also easy—to say that the monetary union should never have started with a patchy landscape of national supervisors working with uneven standards.”

Some analysts question whether the new regulatory system goes far enough. “Like many others, I would have preferred a separate supervisory institution, but for that the EU Treaty would have to be changed—a time-consuming exercise with an uncertain outcome,” says Sandte. “People in the ECB are well aware of the possible conflicts of interest between monetary policy and banking supervision. These conflicts will arise, and they have to be managed. Now it is important that the ECB quickly finds qualified supervisors.”