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Improving the resilience of the financial sector - Resilience of the EU financial sector in the global context

The SSM: building on a successful first one and a half years

By Sijbrand Jan - Director of Supervision, De Nederlandsche Bank

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In recent years, several measures have been taken to strengthen the banking sector in the euro area and restore trust in this cornerstone of the economy. One of the most ambitious of these was the establishment of the Single Supervisory Mechanism, or SSM. In the relatively short amount of time that has passed, the SSM has changed the supervisory landscape significantly. Supervision has taken a European dimension, and this has affected the way supervisors as well as banks operate.

With the SSM we have made vast progress in harmonizing the way we supervise our banks. The goal of the SSM is strong, high quality and consistent supervision. The fragmented national supervision of large – often internationally active – institutions needed improvement. We come from a situation where there were large deviations in supervisory approaches in different countries. For instance, the approaches for the Supervisory Review and Evaluation Process (SREP) – for banks differed widely. In 2015 the 123 largest banking groups in the euro area were evaluated for the first time with a common methodology. Furthermore, the SSM has now agreed on a single application of the options and national discretions in banking regulation. These had also been a source of regulatory fragmentation.

The SSM is built on the good cooperation between ECB and national supervisors, such as DNB. European banking supervision is decentralized in nature as the majority of the staff are employed by the national supervisors. Within the SSM we are working together effectively, for instance in working groups, onsite inspections and the joint supervisory teams.

The SSM is incorporating best practices from different supervisors. To give an example: our supervisory experience at De Nederlandsche Bank with governance, behavior and culture is finding more and more resonance in the European supervisory framework. At the same time experiences of other NCAs with a focus on data reporting are now incorporated also at DNB. Together, we have thus created a supervisory approach that is both effective and powerful. We are getting the best of both worlds and this is one reason why SSM supervision constitutes a major step forward in the supervision of banks.

The SSM has changed the supervisory landscape significantly.

As a successful single supervisor for large banks in Europe, the SSM also contributes to reducing the link between sovereigns and banks. Firstly, because the SSM is independent from any single government or financial system. Supervision is done, for instance, by mixed-nationality joint supervisory teams. In this regard, the Comprehensive Assessment in 2014 also was an important milestone in assessing the SSM banks from an independent viewpoint and based on a common yardstick. And the results were reassuring: the majority of the banks are adequately capitalized. Last year the SSM performed a new Comprehensive Assessment for the large Greek banks as the solvency and liquidity situation of the banks had deteriorated significantly due to the political uncertainty. Also here the SSM proved the added value of having a supervisor with an independent European perspective. Furthermore, a successful SSM is an essential step towards a successful banking union, which is necessary to further disentangle sovereigns and banks. The SSM now works closely together with the Single Resolution Mechanism which has taken over the resolution tasks for significant and cross-border banks in the banking union.

To conclude, despite challenges and hurdles, European supervision of our largest banks by the SSM is now functioning successfully. There is still much work ahead, but given what we have accomplished so far in such a short time frame we are on the right path.