The role of the SSM and banking union

The role of the SSM and Banking Union

Overview of the SSM and its role in the banking union.

Partner, Co-Head of KPMG’s ECB Office

KPMG in Germany

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The Single Supervisory Mechanism (SSM) is a system of banking supervision for Europe that is made up of the ECB and the national supervisory authorities of the participating countries. Currently, all euro area countries are participating- 19 jurisdictions. The overall project is known as the banking union.

The ECB in its supervisory capacity sits at the center of the SSM. It directly supervises the 123 most significant banks in the euro area with the assistance of the national supervisors and also oversee the supervisory approach of all other banks in the euro area. The ECB is seeking to establish a harmonized supervisory approach to day to day supervision.

The decision on whether a bank is significant depends on a number of criteria including:

  • Total assets greater than €30bn or exceeds 20% of national GDP (unless total assets are less than €5bn),
  • Total assets greater than €5bn and a ratio of cross border assets is greater than 20% in more than one other participating  member state
  • Is one of the three most significant credit institutions established in a Member 
  • Received funding from European Stability Mechanism

The ECB itself consists of a monetary authority and a banking supervisor. The ECB supervisory function is headed by a Supervisory Board that is made up of six ECB nominations and a representative of each national supervisory authority. An Administrative Board of Review and a Mediation panel have also been created in case of controversial decisions involving a bank or if differences arise between the Supervisory Board and the ECB Governing Council. Further detail on the working of the ECB can be found in the legal framework section of the website.

The ECB itself is made up of four directorates (DGI-IV) and a Secretariat to the Supervisory Board. Two of the directorates focus on direct supervision of the largest banks while a third directorate is focused on the less significant institutions and ensuring a harmonized supervisory approach, the final directorate provides specialized support and expertise to the supervisors and is focused on polices and methodologies.

Direct supervision makes use of Joint Supervisory teams (JSTs). The JSTs comprise staff from both the ECB and the relevant national supervisors. The size, overall composition and organization of a JST can vary depending on the nature, complexity, scale, business model and risk profile of the supervised credit institution.

The legal framework that supports the SSM is centered on the SSM regulation which bestows most of the powers on the ECB. The regulation empowers the ECB to levy a fee on the supervised banks to recoup its costs.

As it stands, the ECB supervises directly approximately 85% of the assets of the euro area banking system.

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