16 Jun 2016

Europe’s Single Supervisory Mechanism – a First Assessment

One and a half years after the installment of the Single Supervisory Mechanism (SSM), SAFE takes stock: What has been achieved in the new European supervisory landscape, what remains still to be done? These questions were discussed on June 16th by Dirk Schoenmaker (Bruegel & Erasmus University), Sascha Steffen (University of Mannheim & ZEW), Nicolas Véron (Bruegel and Peterson Institute) and Mark Wahrenburg (Goethe University). The panel discussion, moderated by Hans‐Helmut Kotz (SAFE & Harvard University), was jointly organized by the SAFE Policy Center and Bruegel.

The discussants agreed that the SSM has taken huge steps to improve banking supervision in Europe. Its regime is said to be tough but fair, definitely tougher than each of the nine national supervisory systems, thus encouraging a “race to the top”, as Nicolas Véron stated. However, there was also consensus that the overall regulatory setting could still need some improvement. According to Véron, the ECB/SSM Supervisory Board is dominated by national interests; Véron and Dirk Schoenmaker bemoaned the lack of transparency in the process, and Mark Wahrenburg pointed to the suboptimal division of tasks between the ECB/SSM and the European Banking Authority that would inevitably lead to inefficiencies regarding the highly important sharing of information and data.

According to Wahrenburg, despite the transfer of regulatory competencies to the supranational level, national regulators still play an important role in the process. Their effort is on preventing their banks from going bankrupt which results in institutes that survive despite an unsustainable business model. The Single Supervisor should reduce these negative external effects that prevent a level playing field for banks in Europe.

The panelists expressed different views with respect to the need for a joint European deposit insurance scheme (EDIS) which is being heavily blocked by Germany, and especially German savings banks, as Nicolas Véron noted. Dirk Schoenmaker said that such a scheme would be needed in order to overcome fragmentation in European banking markets. Sascha Steffen claimed that, with functioning Single Supervisory and Resolution Mechanisms, he would not have a problem with EDIS as this would no longer be needed.

Triggered by the audience, the panel also touched the burning issue of the low to negative interest rates and the consequences for the banking sector. Nicolas Véron pointed to the fact that, contrary to popular opinion, interest rate margins have more or less remained constant, at least until the end of 2015. Sascha Steffen countered the current complaints by financial institutions with the statement that banks simply cannot follow a business model that only works when interest rates are within a certain range.