Cooperation on Systemically Important Financial...

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Cooperation on Systemically Important Financial Institutions in Europe World Bank, IMF, FRB 6 June 2013 Danièle Nouy, Secretary General, Prudential Supervisory Authority

Transcript of Cooperation on Systemically Important Financial...

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Banque de France – Secrétariat général de la Commission bancaire Banque de France – Autorité de Contrôle Prudentiel Banque de France - Autorité de Contrôle Prudentiel

Cooperation on Systemically Important Financial Institutions in Europe

World Bank, IMF, FRB

6 June 2013

Danièle Nouy, Secretary General, Prudential Supervisory Authority

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Banque de France – Secrétariat général de la Commission bancaire Banque de France – Autorité de Contrôle Prudentiel

The European Banking Union

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1. Path to the "European Banking Union" : from the Lamfalussy framework to the ESAs.

2. Organizing banking supervision at the ECB level: which scope, which tasks, … ?

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Banque de France – Secrétariat général de la Commission bancaire Banque de France – Autorité de Contrôle Prudentiel

The path to the Banking Union: CEBS & EBA 1

The Lamfalussy report (2001): An integrated approach to financial services regulation in the European Union.

Comprising four steps:

European directives,

Technical advice from European committees to the European Commission,

Coordination among national regulators,

European enforcement of the new rules.

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The Committee of European Banking Supervisors

Created in 2004 as an independent advisory committee.

Extended responsibilities from 2009.

First stages of a regional supervision of cross-border institutions:

Supervisory Colleges, Cross-border inspection under CEBS warrants.

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The Committee of European Banking Supervisors

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1 January 2011: launch of the three European Supervisory Authorities (ESAs):

European Banking Authority (EBA), European Insurance and Occupational Pensions Authority

(EIOPA), European Securities and Markets Authority (ESMA).

Completing the European System of Financial Supervisors alongside with the European Systemic Risk Board.

Extending cooperation beyond systemic institutions: a single

regulatory framework for a single market.

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The European Banking Committee

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A Standard setter: • Drafting Binding Technical Standards and issuing guidelines: The Single

Rule Book; • Ensuring homogeneity of supervisory practices: The Supervisory

Handbook.

A European referee: • Investigating breaches of Union law and addressing recommendations, • Monitoring the European Colleges of Supervisors, • Settling disagreements between supervisors in cross-border situations.

A back-up supervisor:

• Conducting Union-wide stress-tests and recapitalisation exercises in 2011/2012;

• In emergency situations, taking actions and coordinating national efforts; • Identifying and measuring the systemic risk.

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Why a Banking Union?

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To break the vicious circle between banks and sovereigns, To improve the conduits of monetary policy, To protect deposits and avoid bank runs in downturns, To ensure direct recapitalization of banks through the European

Stability Mechanism (ESM), it is based on three Pillars:

The Single Supervisory Mechanism, drawing on existing provisions in the Treaties for conferring “specific tasks to the ECB concerning policies relating to the prudential supervision of credit institutions”

(art. 127.6 TFEU); A Single Resolution Mechanism; A Deposit Guarantee Scheme.

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The European Banking Union – The Single Supervisory Mechanism (SSM)

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State of Play: 29 June 2012: Euro area Summit requests to set-up a SSM; 12 September 2012: European Commission presents a three-fold

proposal: Proposal for Council Regulation conferring specific tasks in the

field of prudential supervision to the ECB (art. 127.6 of TFEU), Proposal for a modification of the EBA Regulation (n°1093/2010), Communication outlining the Commission’s overall vision for rolling

out the Banking Union; 12 December 2012: Council political agreement; 19 March 2013: conclusion of the Trialogue; Expected in the coming weeks : adoption by the EP (pending the

outcome of the consultation of the German Parliament).

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The Single Supervisory Mechanism (SSM): The role of the ECB

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Main responsibilities: Authorization and withdrawal of authorization of credit institutions; Ensure compliance with prudential requirements, adequacy of capital

and governance, including at consolidated level, in accordance with both Union Law and national law implementing European directives.

Means of action:

Carry out supervisory reviews, stress-tests, and imposing specific additional prudential requirements;

Conduct investigations, require information, conduct on-site inspections (subject to prior notification to the NCAs concerned);

Apply financial sanctions and administrative sanctions for breaches to European Law, and early intervention tools.

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The Single Supervisory Mechanism (SSM): The geographical Scope

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Euro-zone countries "In view of the close links and interactions between Member States

participating in the current currency, the banking union should apply at least to all Euro area Member States" (9th Recital of the proposed Council Regulation).

Opt-in clause for countries outside the Euro-zone: Close cooperation with non-euro Member States is provided for in the

Regulation… ….With a view to eventually open the participation to the SSM to all

Member States.

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The Single Supervisory Mechanism (SSM): The institutional Scope

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Institutions under direct ECB supervision: Size:

assets exceed 30 billion euros, ratio of assets to GDP exceeds 20%;

In any case: the 3 largest institutions nationally; Direct financial assistance from the EFSF or ESM.

ECB to adopt methodology in consultation with NSAs.

Estimated population: 130 banking groups (provisional figure).

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The Single Supervisory Mechanism (SSM): The governance and accountability

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ECB Governing Council: ultimately responsible for taking decisions (the Governors of the Eurozone, in addition to the 6 members from the Executive Board).

Supervisory Board: includes 4 representatives from the ECB and the participating national supervisory authorities.

Steering committee: more limited composition, prepares the meetings of the Supervisory Board.

Separation in ECB services and missions between monetary policy and Eurosystem tasks, on the one hand, and supervisory tasks conferred to the ECB pursuant to the SSM regulation, on the other hand.

Accountability to the European Parliament, Council and Eurogroup.

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The EBA in the new supervisory framework

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Broader scope of action for the EBA: Includes all credit institutions and investment firms in the Union, and Consumer protection and Anti-Money laundering coordination.

Maintenance of EBA tasks and prerogatives: Regulatory and coordination roles fully maintained; Specific procedure for cases of settlement of disagreement and

emergency actions: ECB subject to comply/explain procedure, and effective means of intervention granted to EBA.

Need for a balanced decision making process between SSM participants and others: ECB remains an observer, NSAs remain members, Qualified majority votes are maintained, Simple majority votes: adoption unless rejection by a majority

composed by at least 3 SSM NSAs + 3 non SSM NSAs.

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The national supervisors in the SSM

Institutionnal scope: • All credit institutions not under direct ECB oversight, • Credit institutions that do not fit the European definition, • Investment and insurance firms.

Tasks remaining within national supervisors’ exclusive competence: • Oversight of investment and payment services, • Financial markets and instruments, • Anti-money laundering, • Consumer protection, • Resolution (until the second pillar of the SSM is implemented), • Other national responsibilities.

Assistance on SSM tasks, decisional role for indirect supervision and codecision on common procedures.

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Banque de France – Secrétariat général de la Commission bancaire Banque de France – Autorité de Contrôle Prudentiel

The European Banking Union – Next Steps

SSM legislative process: • Vote in European Parliament’s plenary session, • Adoption by the European Council, • Translation process.

Entry into force: upon publication in the OJEU, and full effect in principle twelve months later.

SSM operations: preparatory work in progress: • Consultation over the new supervisory framework (summer 2013), • Project team: weekly steering and liaison with other ECB departments, • Implementation of the supervisory, steering, mediation and review committees.

Progress on pillars 2 & 3 of the banking Union:

• Resolution: ongoing Trialogue on the Resolution Directive; legislative proposal creating a SSM-wide Resoution Authority for this summer;

• Deposit Guarantee: no fixed schedule as technical details still to be defined.

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Banque de France – Secrétariat général de la Commission bancaire Banque de France – Autorité de Contrôle Prudentiel

Conclusion

The regulatory proposals launch the first stage of a Banking Union that is necessary in order to safeguard financial stability and protect European taxpayers.

This project not only achieves supervisory cooperation on systemic cross-border and national credit institutions, but it represents a fully integrated approach of European Supervision with the aim to hopefully eventually encompass the whole Single Market.

Still work ahead to achieve the single banking market: banking

structural regulation, corporate laws, tax systems…

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Banque de France – Secrétariat général de la Commission bancaire Banque de France – Autorité de Contrôle Prudentiel

Thank you

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