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

SSM: playing a crucial role in facilitating the free movement of capital

By Matherat Sylvie - Member of the Management Board and Chief Regulatory Officer, Deutsche Bank AG

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The free movement of capital is a fundamental building block of the European single market. The ability to invest across national borders benefits us all. It gives savers a greater range of investment options; companies a bigger pool of investors to buy their shares and bonds; and banks a deep and liquid market from which to source funding, better enabling them to fulfil their role of financing the real economy.

However, this free movement came under threat during the financial crisis. The funding market froze. Within the EU, regulation became fragmented, prioritising uncertain local instability over certain threats to group viability, making it harder for banks to manage financial resources efficiently. While understandable from a national perspective, this undermined the benefits of the free movement of capital and – within the euro-area–effective conduct of monetary policy.

So far, good progress has been made in addressing this. The Capital Requirements Regulation (CRR) recognises the importance of free-flowing liquidity within the EU, in particular, for banks which efficiently manage liquidity in a centralised manner. However, the ongoing viability of this model relies on host authorities having confidence that their concerns will be taken into account.

The SSM should eliminate national discretion and options which undermine its role.

Addressing this was one of the core aims behind the set-up of the single supervisory mechanism (SSM): to ensure the concerns of domestic stability are effectively balanced with euro-area stability. The foundation of the single market was underpinned by installing group-wide supervision, which permeates beyond national borders.

However, the SSM should go further and eliminate remaining national discretion and options which undermine its role with unnecessary ring-fencing measures. This can be achieved through regulatory harmonisation or greater supervisory coordination. Either way, these outstanding uncertainties must be addressed. Only then can we honestly say that the SSM has created a truly European market.