The national supervisory authorities will retain their responsibilities with regard to these institutions. I am aware, however, that the transition to a common European supervisory structure results in a degree of uncertainty. Many institutions are concerned that the SSM will lead to complete harmonisation of supervisory standards and practices throughout Europe, and that this will not reflect the special features of the German banking sector, but will instead be adapted to large banks with cross-border activities. Equally, they are worried that the ECB will also demand large amounts of data from smaller institutions via the national supervisory authorities.

These concerns are understandable. After all, we are on the verge of a fundamental restructuring of banking supervision in Europe, and we must be clear that a reform of this magnitude cannot leave any institution unaffected. However, I am convinced that we succeeded in restricting the impact on smaller institutions to a reasonable level during the European discussions. Direct communication with the ECB will remain the exception for these institutions and they can also continue to communicate in German in the future. The familiar contacts at BaFin and the Bundesbank will remain in charge, meaning that very little will actually change in daily supervisory practice. The ECB will certainly also gather information about the institutions that it does not directly supervise but, as a rule, it will do this via the national supervisory authorities. The SSM will therefore not involve additional reporting requirements per se, and particularly not financial reporting in accordance with International Financial Reporting Standards (IFRSs).

Responsibilities

In principle, all credit institutions in the eurozone fall under the SSM. However, only significant institutions will be supervised by joint supervisory teams led by the ECB. Less significant institutions (LSIs) will remain under the principal supervision of the national supervisory authorities. The ECB is responsible for the effective and consistent functioning of the single supervisory mechanism. In doing so, it is obliged to cooperate and exchange information with the national supervisory authorities. This also applies in relation to the less significant institutions.

In Germany, an institution will be classified as significant if the total value of its assets exceeds €30 billion at the highest level of consolidation within the SSM states. Following on from this, a credit institution whose total assets at the solo level are below the threshold will nonetheless be classified as significant if it belongs to a significant group. A total of around 65 individual institutions domiciled in Germany fall under this definition. Accordingly, approximately 1,650 German institutions are less significant and the national supervisory authorities will remain responsible for all supervisory decisions relating to them. This excludes granting and withdrawing authorisations and assessing the acquisition of qualifying holdings. In such cases, a standard procedure will be applied to all institutions in which the ECB will be responsible for the formal decisions. The national supervisory authorities will prepare these and support the ECB.

The ECB may only act on the basis of directly applicable European law or national law that transposes European directives. Directly applicable European law comprises regulations such as the Capital Requirements Regulation (CRR) on the one hand, and technical standards on the other. One prominent example of a European directive is the Capital Requirements Directive IV (CRD IV). BaFin remains responsible for special national provisions such as the Building and Loan Associations Act (Bausparkassengesetz) or the Pfandbrief Act (Pfandbriefgesetz). The same applies to powers under national law that go beyond the scope of the European requirements, for example relating to crisis management or the recovery and resolution of credit institutions.

Harmonisation

At the ECB, the Directorate General Micro III headed by Jukka Vesala will deal with less significant institutions. Since supervision of LSIs remains the responsibility of the national supervisory authorities, the staff of DG Micro III will primarily maintain contact with these authorities and thus gain an overview of supervisory practice in the SSM area.

The ECB’s objective will and must be to harmonise supervisory practices in the long term. From BaFin’s perspective, a certain degree of supervisory harmonisation is vital in an integrated supervisory system. Harmonisation cannot be an end in itself, however. National structures that have evolved and proven themselves must be taken into account in the SSM, and only similar institutions should be subject to similar supervision.

BaFin’s supervision of less significant institutions is primarily performed by the BA 3 and BA 4 Departments of the Banking Supervision Directorate.

Regular reporting to the ECB

The SSM Framework Regulation requires the national supervisory authorities to inform the ECB if they wish to initiate a “material supervisory procedure” or adopt a “material supervisory decision”. The ECB can express its views on these, but cannot make any binding recommendations for action. It will develop a risk classification methodology that will be used to define which specific procedures and decisions must be reported regarding which institutions.

Articles 99 and 100 of the SSM Framework Regulation also govern the ex post reporting requirements of the national supervisory authorities. Here, too, the ECB will specify what information must be reported in respect of which institutions and how frequently this should occur. At a minimum, there will be an annual report on each institution, and the ECB can request a consolidated report on a specific “category” of less significant institutions from the national supervisory authorities.

These reporting requirements relate exclusively to the national competent authorities and not to the institutions themselves. The planned SSM risk classification for less significant institutions will also have no initial effect on the institutions. BaFin intends to retain the present approach to risk classification for the time being.

Influence of the ECB

The ECB has overall responsibility for the functioning of the SSM and, for this reason, it exercises general supervision of the national supervisory authorities. Article 6(5)(a) of the SSM Regulation lists the legal instruments that are available to it for this purpose. Using binding guidelines and non-binding general instructions, it can specify how the national supervisory authorities should exercise supervision over less significant institutions. In this way, the ECB can specify the main focus of supervisory activities, for example, or set out general principles for assessing certain circumstances. However, it cannot ask a national supervisory authority to perform certain supervisory actions or to adopt a particular decision. In other words, it has no power to issue instructions in individual cases.

If the ECB considers that a national supervisory authority is not complying with the supervisory standards of the SSM, it has the right to take over full direct supervision of a less significant institution. The ECB is only likely to make use of this option in exceptional cases, however. In order to determine whether a national supervisory authority is complying with the supervisory standards of the SSM, the ECB can also draw on the investigatory powers laid down in the SSM Regulation in relation to less significant institutions. These include in particular requests for information and general investigations, but can also involve on-site inspections in individual cases. In such cases, the ECB and the national supervisory authorities must coordinate their investigations.

Language

The working language of the ECB and the European System of Central Banks (ESCB) is English. It was therefore decided to also use English as the working language in the SSM for communication between the ECB and the national authorities.

However, the parties in a supervisory procedure, i.e. the applicants or addressees of an ECB supervisory decision, can communicate with the ECB in any of the official languages of the EU. This is stipulated in the Regulation determining the languages to be used by the EU and in the SSM Framework Regulation.

Supervisory fees

The ECB will publish its proposals on levying supervisory fees in the coming weeks. Both credit institutions in the participating member states and branches of institutions from non-participating member states must pay the fees. These include less significant institutions, as the ECB also incurs costs from the “indirect” supervision of LSIs in the Directorate General Micro III. Such costs must be covered by supervisory fees that cannot be allocated to the significant institutions. BaFin is advocating that particularly small institutions should be exempted from the fees.

Calculation of the fees will be governed by a separate regulation on which the ECB will shortly conduct a public consultation. In any event, the amount of the fees will be based on the significance and risk profile of the institution concerned.

Data collection

In order to fulfil its duties, the ECB is considering regularly collecting data not just from significant institutions, but also from the less significant institutions in the medium term. The German supervisors already have access to comprehensive data as a result of the new Financial Information Regulation (Finanzinformationenverordnung – FinaV).

In principle, the responsibility for LSI reporting remains at the national level. This means that less significant institutions will transmit their data solely to the national supervisory authorities, as before. These authorities may, however, forward the data to the ECB. In deciding which data this will be, the ECB will follow the proportionality principle, taking into account the size and the business model of the individual institution. In other words, the institutions will not be required to deliver data that they do not have. For example, an institution that uses German GAAP for its financial accounting cannot be expected to provide IFRS figures.

Proportionality and subsidiarity

The changes introduced by the transition to the Single Supervisory Mechanism will therefore also affect less significant institutions. It would be impossible for this to happen any other way in light of this far-reaching change in the supervisory structure. However, the SSM was deliberately designed – not least in view of the principles of proportionality and subsidiarity – so that its direct impact on smaller institutions would remain limited. Since the contact persons at BaFin and Deutsche Bundesbank retain their responsibilities, direct contact with the ECB will remain the exception for these institutions.

Specific supervisory activities will also adhere to the established processes in the first instance. In this area, however, the SSM also offers an opportunity to jointly develop better and more effective supervisory practices as part of a European dialogue. If the transition to integrated European supervision succeeds in stabilising the eurozone’s financial system, everyone will benefit.