We look at the challenges facing the Single Supervisory Mechanism in the coming years, and discuss vulnerabilities in the euro area’s banking system, as well as possible improvements in the SSM’s internal practices. Among the former are low profitability, the increased role of the shadow banking system and weak governance. The latter include an overly complex regulatory framework, limits on staffing that lead to excessive usage of consultants, the need for more transparency and accountability. The SSM should help banks achieve more sustainable returns by making supervisory requirements less complex. It should monitor shadow banks, ensuring that traditional lenders are isolated from possible shocks. As for governance, the SSM ought to engage in a multi-year action plan aimed at improving ethics, technical qualifications, checks and balances. Regulatory complexity must be reduced by further harmonising national rules. Constraints on the SSM’s budget and human resources should be loosened, but the use of external consultants ought to be limited to special cases. Accountability and transparency can be enhanced, e.g., through greater disclosure on resources and objectives, SREP and other internal methodologies, and on decisions taken by the SSM’s Administrative Board of Review. The European Court of Auditors should be entitled to assess the soundness of the SSM’s processes, without interfering with individual supervisory decisions.
The next SSM term: supervisory challenges ahead
andrea cesare resti
2019
Abstract
We look at the challenges facing the Single Supervisory Mechanism in the coming years, and discuss vulnerabilities in the euro area’s banking system, as well as possible improvements in the SSM’s internal practices. Among the former are low profitability, the increased role of the shadow banking system and weak governance. The latter include an overly complex regulatory framework, limits on staffing that lead to excessive usage of consultants, the need for more transparency and accountability. The SSM should help banks achieve more sustainable returns by making supervisory requirements less complex. It should monitor shadow banks, ensuring that traditional lenders are isolated from possible shocks. As for governance, the SSM ought to engage in a multi-year action plan aimed at improving ethics, technical qualifications, checks and balances. Regulatory complexity must be reduced by further harmonising national rules. Constraints on the SSM’s budget and human resources should be loosened, but the use of external consultants ought to be limited to special cases. Accountability and transparency can be enhanced, e.g., through greater disclosure on resources and objectives, SREP and other internal methodologies, and on decisions taken by the SSM’s Administrative Board of Review. The European Court of Auditors should be entitled to assess the soundness of the SSM’s processes, without interfering with individual supervisory decisions.
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