In terms of risk-weighted assets, the median Core Tier 1 ratio of the largest euro area banks currently stands at 12.7%, above their American counterparts. The majority of significant euro area banks already comply with the minimum capital requirements of the fully implemented Basel III framework. In terms of leverage – as measured by the ratio of equity over total assets – EU banks may at first sight appear to have lower ratios than their US peers, but as FDIC Vice Chairman Thomas Hoenig has showed, if the same accounting standards are applied then the median of the leverage ratios of large EU and US banks are quite similar. In terms of absolute nominal size, if we look at the 20 largest banks in the EU and the US, the EU banks now have a capital level approximately 100 billion dollars larger. 2  Gabriel Jiménez, Steven Ongena, José-Luis Peydró and Jesús Saurina (2012), “Macroprudential Policy, Countercyclical Bank Capital Buffers and Credit Supply: Evidence from the Spanish Dynamic Provisioning Experiments” Sveriges Riksbank working paper. 4  BIS central bankers’ speeches  Where euro area banks do not compare so favourably with their US peers, however, is in their low profitability and fragile investor confidence. Investors seem to be uncertain whether banks have proper asset valuations and are adequately provisioned. But this is precisely the issue the comprehensive assessment should address – it is an exercise in removing uncertainty by giving investors all the facts.
Starting with the institutional limitations, the key innovation of the SSM is that it creates genuinely European supervision, by which I mean supervision on both core and peripheral banks. From November next year, every bank in Europe will be part of the same system. This puts supervisors in a better position to prevent boom-bust cycles caused by excessive cross-border lending – and if they fail to do so, there will be collective responsibility for that failure. In line with the subsidiarity principle, European supervision will involve centralised and decentralised elements. For the big significant banks (around 130), the ECB will be the direct responsible supervisor, but supervision will take place at both the European and national levels. We will integrate these levels by setting up Joint Supervisory Teams (JST) for each significant bank. Let me use the example of Santander to illustrate how this will work. For the parts of the banking group resident within the SSM, there will be a core supervisory team comprising of staff from both the ECB and the national competent authorities (NCAs) in the countries where Santander is active – that is 9 within the euro area. Within this team there will be a national coordinator for each country, drawn from the respective NCA, and an overall coordinator, who will be an ECB staff member. The national coordinators will manage the permanent experts working at the national level, while the ECB coordinator will ensure quality and take responsibility for output sent to the Supervisory Board.