Landmark EU Parliament – ECB agreement on bank supervision

European Parliament, Economic and Monetary Affairs Committee (ECON) meeting: Towards a genuine economic and monetary union. MEP Marianne Thyssen in the foreground on the left, (European Parliament, Audiovisual Services)

In a ground breaking development opening the way to the European Banking Union, the European Parliament and the European Central Bank undersigned the draft text of an Interinstitutional Agreement providing for the exact procedures related to the enactment of the Single Supervisory Mechanism. The legislative had reserves about the transparency and accountability of the SSM to be institutionalised under the authority of ECB.

At the beginning all Eurozone countries are obliged to participate in the EBU and the SSM. ECB will undertake directly the supervision of the 150 systemic banks of the euro area. Every other EU country is free to fully participate accepting of course the entire framework of the Mechanism. In this context the less important banks in all participating countries will continue to be supervised by the national central banks, which will be following standard supervisory practices to be drafted by the European Banking Authority. The ECB would be able to intervene supporting the national central banks in their role. Actually the ECB may at any moment decide to directly supervise one or more of these less important banks to ensure consistent application of high supervisory standards.

Presidents’ agreement

At this point it must be noted that the European Parliament had raised a number of issues over the creation of the SSM related to the democratic legitimisation and the accountability of ECB, in its role as a central supervisor of all euro area’s banks. Seemingly the agreement reached between the Parliament and the ECB yesterday adequately answers the reserves of legislators. To this effect the Presidents of the two institutions, Martin Schulz and Mario Draghi, signed a Declaration covering this uncharted area.

The relevant part of this common Declaration states that the “The draft Interinstitutional Agreement provides in particular for strong parliamentary oversight of the ECB’s supervisory tasks through regular exchanges of views with Parliament’s responsible committee, confidential oral discussions with the Bureau of that committee, and further access to information including to a record of proceedings of the Supervisory Board. ECB cooperation with the European Parliament in the framework of its investigations is also ensured”.

In this quote above there is however a key phrase providing only for “oral discussions with the Bureau”. Obviously this means there will be no minutes held and consequently the members of the Bureau of that Parliamentary Committee wouldn’t be able to refer to what was discussed with the ECB representatives, that is the SSM’s Supervisory Board. This practice comes under a more general conservative attitude of ECB, the Governing Council of which doesn’t release the minutes of its discussions despite strong pressures from the public opinion. Only recently Mario Draghi accepted that the ECB could release just a summary of the Governing Council’s discussion records.

Parliamentary control

However the legislative would have “access to information including to a record of proceedings of the Supervisory Board”. This Board will be the top body of the new and independent SSM department under the roof of ECB, which will undertake the task of supervising Eurozone’s banks. The Chair of the Supervisory Board will be required to appear at regular hearings before Parliament. In addition the Parliament will be involved in the selection procedure of the Chair of the Supervisory Board. On top of that, “ECB cooperation with the European Parliament in the framework of its investigations is also ensured”. Understandably the investigative part of SSM’s workings as supervisor of euro area banks is of crucial importance.

The results of those investigations will be the subject matter on which crucial decisions will be made. More so if the final assessment of ECB will be that the bank in question is ‘beyond limit of repair’. Of course from that point onwards it’s up to the resolution authorit(y)(ies) to decide and place the bank under a resolution process. Unfortunately there is still no agreement about this last stage. The thorny question is whether there will be one single central resolution authority for failing banks presumably under the European Commission with access to adequate funding, or the resolution task will be decentralised to national authorities without access to central funding and probably using varying criteria. Mind you the final decision for the resolution of a bank rests with the resolution authority. In this respect Germany obstinently disagrees with the centralised option.

Nearer to the EBU

In any case yesterday’s agreement between the Parliament and the  ECB is a major step towards the enactment of the European Banking Union. Everybody agrees that the creation of the EBU will mark the second more important step in Eurozone’s history, after the introduction of the common currency. Despite the fact that there was already a deal between the Parliament and the Council over the new system of bank supervision, the legislators and the ECB had to agree “how the ECB supervisor would be democratically accountable and transparent”.

Obviously those reserves by many MEPs are now satisfied. MEPs Marianne Thyssen (EPP, BE) and Sven Giegold (Greens/EFA, DE) steered the two legislative texts in Parliament. Both proposals were adopted with very large majorities.

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