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Banking Union: update on supervisory issues - Resilience of the EU financial sector in the global context

SSM: benefits and challenges for cross border banking groups

By Maccario Aurelio - Head of Group Regulatory Affairs, Unicredit

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The transition to the new supervisory framework has been a challenge for both banks and supervisors. The SSM is key in promoting homogeneity of views between “home” and “host” supervisors, hence the balance sheets of cross-border banking groups are expected to become progressively more fungible.

In its first year of activity the SSM has achieved significant goals in terms of level playing field. In this context initiatives to reduce options and national discretions have been welcomed as well as ECB preference for a single recovery plan within cross border banking groups. There is still progress to be made to achieve the full benefit of the single supervisor with regards to the fungibility of liquidity and free flow of capital. Main areas of concern for banks refer to ring-fencing, differences in tax regimes, diverging insolvency frameworks. To this extent, national laws and discretions prevent cross border institutions from providing liquidity to other members of the same group in an unrestricted way. This results in a sub optimal allocation of resources, inefficiency, costs, and creates the impossibility to freely direct resources where they could best be employed in terms of needs and returns.

The main causes of these barriers generally relate to lack of harmonization at EU level due to fragmented legislation, different national interpretations of EU rules, national discretions and an uneven playing field for banks. The SSM will certainly foster – when not directly responsible – such an harmonization.

The SSM role of coordinator and point of synthesis of the National Authorities, is of major importance for cross-border banking groups thanks to its power to promote a holistic and coordinated approach in areas, such as capital planning, liquidity management, recovery plan. This posture is a major game changer for large cross-border banking groups as it enhances the pivotal role of holding companies and simplifies the relations with local supervisory authorities.