BaFin

Topic SSM Joint Supervisory Teams: European cooperation within the SSM in practice

Date: 17.10.2018

Since the Single Supervisory Mechanism was established almost four years ago, many good and productive working relationships have been formed in the daily cooperation within the Joint Supervisory Teams. While the coordination effort involved has grown, the close cooperation has also had the effect of bringing the supervisory legislation and supervisory practices of the euro area countries more into line with one another.

What does this cooperation look like in practice? One of BaFin’s experts, who has been working in the context of European supervision since the inception of the SSM, outlines her diverse day-to-day work in supervisory practice and provides insights into key developments.

At a glance:Joint Supervisory Teams

The SSM supervisory work is carried out as part of an administrative network made up of the European Central Bank (ECB) and the supervisory authorities of those euro area countries in which the respective group of institutions has established subsidiaries or major branches. For this purpose, Joint Supervisory Teams (JSTs) were established. BaFin and the German Bundesbank are therefore represented in both the JSTs of German institutions as well as in those of foreign banks that operate in Germany.

Cooperation in the JST

The JSTs differ in their form and organisation, just as the banks under their supervision differ in terms of their complexity, size and risk profile. To give an example: the JST of a smaller significant institution with no subsidiary institution outside Germany may be made up of a few employees from the European Central Bank (ECB), BaFin and the Bundesbank.

By contrast, JSTs of international systemically important banking groups can include well over 50 team members. In addition to employees of the ECB, these are representatives of the supervisory authorities of the member states in which the banking group operates.

Over the past four years, the JSTs have continued to improve the way they jointly perform their tasks. They generally organise themselves by establishing fixed risk teams – also called clusters or risk subgroups – that exchange views and information in regular meetings and conference calls. English is the daily working language. Standard IT systems, modern communication systems and supervisory tools are an integral part of the work of JSTs.

ECB, BaFin and the Bundesbank share the daily work within the JSTs and continuously coordinate with one another. Representatives of supervisory authorities from other member states are also involved in this well-established coordination process. This enables each authority to contribute its specific knowledge and experience, which results in decisions supported by all JST members.

Supervisory work within the SSM

Supervisory work within the SSM includes a large number of quantitative and qualitative elements. Along with risk-based analyses and investigations, a special focus lies on comparative studies of the institutions throughout the entire euro area. These cross-comparisons improve the information base for supervision and support the SSM’s goal of creating comparable supervisory requirements and, as a result foster fair competition conditions within Europe.

One of the core JST-activities is the Supervisory Review and Evaluation Process (SREP), which is to be carried out once a year for each significant institution. It involves analysing the business model, governance and risk management as well as capital and liquidity risks. The SREP decision might include the establishment of specific qualitative measures to eliminate any deficiencies identified, as well as quantitative capital and liquidity requirements. Thus, SREP decisions can vary depending on the bank profile.

In addition, many central initiatives are initiated and analysed within the SSM, such as thematic reviews that take account of priority topics and inspection campaigns that are carried out simultaneously for several comparable significant institutions. The fundamental design of the Supervisory Examination Program for the 120 significant institutions follows the SSM guidelines, the so-called “Minimum Engagement Level” (“MEL”). Such minimum level of supervisory engagement depends on business models, risk content and size of the institution. The supervisory programme is complemented within the risk-based forward-looking SSM supervision framework by additional activities such as special audits and deep dives.

However, the path towards reaching a final decision has become much longer. When preparing a decision proposal, all the authorities that are members of the respective JST have to be consulted. The decision is then taken by the ECB Supervisory Board and must finally be approved by the ECB’s Governing Council.

If institutions – depending on their size and significance - have subsidiaries, parent institutions or branches - outside the euro area, international cooperation with the competent authorities as well as the regular organisation of Supervisory Colleges is another key task of the responsible JST. Such cooperation serves as a basis for a better understanding of a cross-border bank´s risk profile.

Mutual understanding

The JST group perspective enables additional insight that is helpful for the supervision of nationally significant subsidiaries and branches of systemically relevant SSM institutions with parent companies domiciled in another member state. Working together brings thorough knowledge of the legal systems and cultures of these countries. By the same token, BaFin contributes its own national supervisory perspective to the activities of JSTs.

Even after four years of intensive work in international JSTs, the supervisory culture and legal bases in Europe still differ. However, mutual understanding of national particularities has become more of a matter of course and is constantly increasing through daily cooperation.

At a glance:What is the SSM?

Almost four years ago, with the launch of the Single Supervisory Mechanism (SSM) on 4 November 2014, the European Central Bank (ECB) assumed direct supervision of nearly 120 major banks (significant institutions – SIs) in 19 euro area countries. Germany's 21 institutions constitute the largest national share. Together with the Single Resolution Mechanism (SRM) and the deposit guarantee provisions to be harmonised on the basis of the corresponding directive, the SSM constitutes the first of three pillars of what is known as the banking union. A Single Rulebook for the entire European Economic Area is intended to function as the basis for creating a level playing field. The SSM thus contributes to financial stability in Europe and the strengthening of the euro area, while also constituting a direct part of the European idea.

BaFin’s role as an integrated financial supervisor

As an integrated financial supervisory authority, BaFin has a special role within the SSM because it contributes many years of experience in banking, insurance, securities and conduct supervision as well as consumer protection. This knowledge is both valued and in demand within the SSM since major banking groups are closely interwoven with the entire financial sector.

At the same time, collaboration in the JSTs also allows insight into European supervisory practice, which can be beneficial for the supervision of the approximately 1,700 less significant institutions, for which BaFin remains directly responsible. Its work is monitored as part of indirect supervision by the ECB.

BaFin therefore contributes to the complex SSM supervision in a number of ways, helping to strengthen national and international financial stability. Through its participation in the SSM, it also contributes to the further development of the underlying European idea – shaping unity in diversity.

Author

Dr Angelika Sporenberg
Head of Division in BaFin´s Directorate for the Supervision of Significant Institutions, JST member

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