Proposal for a Council Regulation conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions

Today, the solidity of the banking sector is in many instances still closely linked to the Member State in which they are established. Doubts about the sustainability of public debt, economic growth prospects, and the viability of credit institutions have been creating negative, mutually reinforcing market trends. This may lead to risks for the viability of some credit institutions as well as for the stability of the financial system, and may impose a heavy burden for already strained public finances of the Member States concerned.

The situation poses specific risks within the euro area, where the single currency increases the likelihood that developments in one Member State can create risks for economic development and the stability of the Euro area as a whole. Furthermore, the current risk of financial disintegration along national borders significantly undermines the Single Market for financial services and prevents it from contributing to economic recovery.

The creation of the European Banking Authority (EBA) by Regulation (EU) No. 1093/2010 of the European Parliament and the Council of 24 November 2010 establishing a European Supervisory Authority (European Banking Authority), and of the European System of Financial Supervision (ESFS) already contributed to improved cooperation between national supervisors and to the development of a single rulebook for financial services in the EU. However, supervision of banks remains to a large extent within national boundaries and thereby fails to keep up with integrated banking markets. Supervisory failings have, since the onset of the banking crisis, significantly eroded confidence in the EU banking sector and contributed to an aggravation of tensions in euro area sovereign debt markets.

The Commission has therefore called in May 2012, as part of a longer term vision for economic and fiscal integration, for a banking union to restore confidence in banks and in the euro. One of the key elements of the banking union should be a Single Supervisory Mechanism (SSM) with direct oversight of banks, to enforce prudential rules in a strict and impartial manner and perform effective oversight of cross border banking markets. Ensuring that banking supervision across the Euro area abides by high common standards will contribute to build the necessary trust between Member States, which is a pre-condition for the introduction of any common backstops.

At the Euro area summit on 29 June, 2012, the Heads of State or Government have called on the Commission ‘to present proposals for the setting up of a single supervisory mechanism shortly. When such a mechanism will be in place for banks in the euro area the ESM could, following a regular decision, have the possibility to recapitalize banks directly’. The European Council conclusions of the meeting held on the 28/29 June 2012 state that this Euro Area statement and the proposals that the Commission will present accordingly should take into account the development of ‘a specific and time-bound road map for the achievement of a genuine Economic and Monetary Union’.

EUR-Lex: COM(2012)511: Follow the progress of this document through the decision-making procedure http://eur-lex.europa.eu/legal-content/EN/HIS/?uri=COM:2012:511:FIN

ESO: Background information: Communication from the Commission to the European Parliament and the Council - A roadmap towards a Banking Union http://www.europeansources.info/record/communication-from-the-commission-to-the-european-parliament-and-the-council-a-roadmap-towards-a-banking-union/

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