4.2.2 The background of the SRM

Documentgegevens:

mr. drs. R.E. van Lambalgen, datum 01-12-2017

Datum: 01-12-2017
Auteur: mr. drs. R.E. van Lambalgen
JCDI: JCDI:ADS584733:1
Vakgebied(en): Financieel recht / Europees financieel recht
Mededingingsrecht / EU-mededingingsrecht

The SRM is one of the pillars of the Banking Union – the other pillar being the Single Supervisory Mechanism (SSM). The Banking Union was created in response to the Eurozone crisis.1 The Eurozone crisis demonstrated that there was a “vicious circle”2 between the finances of banks and the finances of Member States: an ailing bank was usually rescued by the Member State in which the bank in question was established. As a result of these aid measures, the financial position of that Member State deteriorated. This, in turn, affected the banks in that Member State, since banks often hold government bonds of ‘their’ government. Providing support to these banks imposes a further burden on the finances of the State. Hence: there is a vicious circle between banks and governments.3 The Commission noted that this situation “poses specific risks within the euro area, where the single currency increases the likelihood that developments in one Member State can create risks for economic development and the stability of the Euro area as a whole”.4

The Banking Union is aimed at breaking the vicious circle between banks and governments. The Banking Union allows for a rescue of banks at EU-level: the Euro Area Summit Statement of 29 June 2012 held that the ESM should get the possibility to recapitalise banks directly. As a corollary, if banks are rescued/supported at EU-level, then banking supervision should also be transferred to EU-level.5 In order words: the SSM was a precondition for the direct recapitalisation by the ESM.

Another rationale of the Banking Union is that nowadays, banks often operate across national borders. Cross-border banks can operate through branches or through subsidiaries. Before the entry into force of the SSM, the supervision of cross-border banks was divided by home- and host-supervisors.6 Home and host supervisors worked together in colleges of supervisors. National financial supervisors are inclined to take only national interests into account.

The Turner Review (2009) summarised the essence of the problem by quoting Mervyn King (former governor of the Bank of England) who said that “banks are global in life, but national in death”.7 The introduction of the Banking Union was meant to remedy this situation.

The first pillar of the Banking Union is the SSM.8 The SSM is composed of the European Central Bank (ECB) and the national competent authorities (NCA’s) of the participating Member States. Within the SSM, the ECB is responsible for direct supervision of significant9 banks, while the NCA’s are responsible for direct supervision of less significant institutions (though this supervision is subject to the oversight of the ECB).10 On 4 November 2014, the ECB formally assumed its responsibility as supervisor of the banks in the euro area.

While the importance of the SSM cannot be overstated, its relevance to this PhD-study is limited, since it does not have any impact on State aid control. By contrast, the SRM (the other pillar of the Banking Union) is much more relevant to this PhD-study: the SRM concerns the resolution of failing banks and therefore touches upon the issue of State aid to failing banks.

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Véron (2013, p. 4) aptly called the Eurozone crisis a “trigger” for the banking union.

Sometimes referred to as “negative feedback loop”, “doom loop” or “deadly embrace”.

As Franchoo, Baeten & Salem (2014, p. 568) rightly point out, the fact that almost the entire banking sector in the programme countries (i.e. Ireland, Portugal, Greece, Spain, and Cyprus) had to be restructured provides a clearly demonstration of the link between the financial crisis and the sovereign debt crisis.

SSM Proposal, p. 2.

Bovenschen et al. 2013, p. 364; Hadjiemmanuil 2015a, p. 20; Kastelein 2014, p. 35; Ter Kuile 2015, p. 10 (and in particular footnote 139).

For more information, see: Joosen 2010b.

Turner Review, p. 36.

Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions (“SSM-Regulation”). Further rules are laid down in the SSM Framework Regulation, which the ECB adopted pursuant to Art. 6(7) SSM-Regulation: Regulation (EU) No 468/2014 of the European Central Bank of 16 April 2014 establishing the framework for cooperation within the Single Supervisory Mechanism between the European Central Bank and national competent authorities and with national designated authorities.

Art. 6(4) SSM-Regulation clarifies when a bank is ‘significant’. A bank is significant in the following situations:– The total value of its assets exceeds EUR 30 billion.– The ratio of its total assets over the GDP of the participating Member State of establishment exceeds 20%, unless the total value of its assets is below EUR 5 billion.– The ECB may consider a bank to be of significant relevance. The ECB can make this assessment on its own initiative or following a notification from a national competent authority.– The bank has received public financial assistance from the EFSF or the ESM.– The bank is one of the three most significant credit institutions in the participating Member State.

10.

Art. 4(1) SSM-Regulation confers prudential tasks on the ECB. As set out in Art. 3-6 of the SSM Framework Regulation, the day-to-day supervision of significant banks is carried out by Joint Supervisory Teams (JST), which are composed of staff members from the ECB and from the NCA’s.