Europe’s New Single Supervisory Mechanism (SSM) and Banking Union

• In Event: The Effectiveness of Oversight in the European Union in Euroskeptic Times

Abstract

Amongst the array of the EU’s policy innovations in the wake of the financial crisis, Banking Union (BU) – and its strongest pillar, the Single Supervisory Mechanism (SSM), under the aegis of the European Central Bank (ECB) – is by far the most consequential in terms of the centralization of policy-making powers in the EU system. Moreover, at least in principle, BU represents a substantial loss of national sovereignty for the 19 member states that fall under its jurisdiction by moving bank oversight—formerly the purview of national authorities—to the ECB. Nonetheless, as in the case of other federal systems, notably the United States, implementation of centralized banking supervision and regulation has meant less the top-down superimposition of central institutional power than a negotiation and restructuring of the relationship between EU and member-states.

Our aim in this paper is to examine the ECB’s multi-level and complex oversight in banking. Legally and institutionally, the supervision and regulation of European banks requires cooperation within the SSM between the ECB and member-state regulators, as well as the accommodation or attempted standardization of diverse national regulatory systems. It has also involved headline-making political conflict between member-state governments and the EU authorities over critical issues such as Non-Performing Loans (NPLs), bank bailouts and bank stress-testing. We analyze the effectiveness of European banking supervision in these circumstances, and assess the success and limitations of Banking Union’s main ambition: breaking the state-bank doom loops and banking nationalism that undermined the European banking system’s response to the financial crisis.

Authors

• Rachel Epstein, University of Denver

• Martin J. Rhodes, University of Denver