Big Euro-Area Banks to Face Joint Probes by ECB, National Teams

Europe’s biggest banks will face probes from joint supervisory teams of European Central Bank and national regulators when the ECB assumes oversight of euro-area lenders in November.

The Single Supervisory Mechanism, as the ECB’s oversight arm is known, will put the joint teams “in charge of the day-to-day supervision” of about 130 “significant” lenders, according to draft framework regulations for the SSM released in Frankfurt today.

The teams assigned to each bank will “perform the risk analysis of the supervised entity or group” and propose “the appropriate supervisory actions,” the ECB said. The units “will also look after the coordination of the teams carrying out on-site inspections at banks.”

The ECB takes up its supervisory role on Nov. 4, and will share responsibility for more than 6,600 smaller lenders with the 18 euro-area national authorities. The move is part of a broader push to defeat Europe’s fiscal crisis by pooling responsibility for its banks. The legislation handing the ECB oversight powers was adopted last year.

Under the draft plans unveiled today, even lenders that continue to be overseen on a day-to-day basis by their national regulators could be probed by the ECB. It will also have the power to impose fines on the banks it directly oversees as well as “less significant supervised entities where the relevant ECB regulations or decisions impose obligations on less significant supervised entities vis-a-vis the ECB.”

‘Proportionate and Dissuasive’

Under European Union law, the ECB will be entitled to impose “proportionate and dissuasive” penalties for breaches of supervisory rules and decisions, as well as infringements of European law, once it takes up its new role. National regulators will remain responsible for issuing penalties under domestic law.

Bafin, Germany’s joint financial overseer with the Bundesbank, can levy fines of as much as 10 percent of annual sales, or twice the profit made through illegal actions, for some rule violations, after its powers were beefed up this year. It still can’t directly impose penalties for manipulating benchmark rates.

The ECB will also “have the right to issue regulations, guidelines or general instructions” to national supervisors, “and may take over direct supervision over one or more less significant banks, if it deems this necessary to ensure the consistent application of high supervisory standards,” according to the draft.

Bailout Funds

The ECB will determine the banks that it will directly supervise on the basis of five criteria: the total value of assets, importance to the national and EU economy, extent of cross-border activities, whether a bank sought or received aid from euro-area bailout funds, and whether a bank is one of the three most systemic banks in its home country. A bank meeting any one of these five criteria will fall under direct ECB oversight.

The draft ECB-SSM Framework Regulation will be the subject of a public hearing in Frankfurt on Feb. 19. The final regulation will be issued on May 4.

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