The Heads of State and Government of the European Union committed to a banking union in June 2012. Since then, major steps have been taken, within a very challenging timeframe, to set the basis for common supervision, through the single supervisory mechanism and common resolution arrangements; as for harmonized rules to protect depositors, they are also on the agenda, but the progress is clearly lagging behind. Let me now address each of these three pillars of the Banking Union. Single Supervisory Mechanism Last week the European Council adopted the Regulation establishing a Single Supervisory Mechanism (or SSM). Within one year, the ECB will, together with the national supervisory authorities, assume broad supervisory competences over the whole banking sector of the Euro area and of those other EU countries which decide to opt-in. The ECB will be the central player within this new mechanism. Those credit institutions deemed to be significant according to the criteria laid down in the Regulation will be directly supervised by the ECB with the assistance of the national supervisory authorities, while the rest of the system will be indirectly supervised by the ECB through the national supervisors. In numbers, out of approximately 6,000 credit institutions in the Eurozone, the ECB will directly supervise around 130 banks, covering around 85% of total banking assets. The single mechanism will be based on the idea of centralised supervision, offering a common view for the supervision of the whole sector, while building on the knowledge and expertise which exist at national level.
This common view will be established in a set of rules and standards which will be laid down and developed by the EBA and the ECB itself. With the Single Rulebook as a basis, other instruments will also ensure that the same approach is used in the supervision of all banks. This will include the Supervisory Manual and ECB regulations, guidelines and general instructions. BIS central bankers’ speeches  1  Resolution of credit institutions Single resolution, the second pillar of the banking union, is a necessary complement of single supervision. It is essential that if a bank enters into difficulties, it may be efficiently resolved with no or minimal costs for European taxpayers and with little impact on the European financial system and on the real economy. The draft Regulation on Single Resolution, submitted by the European Commission to the Council and the Parliament last July, builds on the concept, envisaged by the European Council more than a year ago, that is, a resolution system comprising a single resolution authority and a single resolution fund. In such a system, resolution will be based, first and foremost, on common EU “bail in” rules, whereby banks’ shareholders and creditors should first bear the cost of a bank resolution. Only if this were not enough, would the single resolution fund – meaning, the Industry – step in, making the fiscal backstop the very last resort.