Supervision in the European Union and the euro area

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There is closer coordination and cooperation among the EU member countries and a growing move towards a centralized system of joint decision-making based on new rules and new institutions.

The new rules comprise a single set of harmonized prudential rules (the Single Rulebook), most of which have direct effect in EU member states and do not need to be transposed into national law.

The new institutions are the European System of Financial Supervision (ESFS), established in 2010 for all EU member states, and the banking union created among the euro-area countries. Other EU countries whose national currency is not the euro can also elect to join the banking union.

The ESFS consists of the European Systemic Risk Board (ESRB), responsible for macroprudential supervision, and the authorities in charge of coordinating prudential supervision in the three key areas: the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA), the European Securities and Markets Authority (ESMA) including the Joint Committee of these three authorities, as well as the member states’ own national authorities.

Banking union among euro-area countries is based on the Single Supervisory Mechanism and the Single Resolution Mechanism. The Single Supervisory Mechanism (SSM) consists of the joint exercise, since November 2014, of supervisory tasks and powers vis-à-vis the banks on behalf of the European Central Bank (with the newly-created Supervisory Board) and of euro-area supervisory authorities (together with those of non-EU countries that wish to join the area). The ECB supervises the ‘significant’ banks directly. The other banks are supervised by the national authorities following ECB guidelines and also by the ECB, based mainly on the information it receives from the national supervisory authorities; the ECB can also supervise these banks directly, if necessary.

Within the banking union, the Bank of Italy contributes to the decisions taken by the SSM's governing bodies. It therefore studies the banking systems of other member states and helps to develop standard practices, in the interests of the stability of the European banking system.

The Single Resolution Mechanism (SRM) has been fully operational since 2016. Crisis resolution for all banks in the countries participating in the Single Supervisory Mechanism is managed, under harmonized rules, by the Single Resolution Board (SRB) or by the national resolution authorities, following common instructions or guidelines established by the SRB, and can be financed by a single fund to which the banks themselves contribute.

GLOBAL STANDARDS FOR THE GLOBAL MARKET

In a market that is increasingly integrated at international level, coordination and cooperation between the supervisory authorities of the different nations is key. Global standards enable the market to expand, therefore offering more investment or funding opportunities to households, firms and governments, and they provide a level playing field for intermediaries and ensure market stability.

Various bodies establish these standards, including the Basel Committee on Banking Supervision and the Financial Stability Board (FSB), in both of which the Bank of Italy is an active participant.