On 12 September, after protracted negotiations, the European Parliament (EP) agreed to a single supervisory system for the major banks in the euro zone. All that now remains is to obtain the formal approval by the Council of the European Union. It is expected that the European Central Bank (ECB) will therefore be able to supervise the approximately 130 institutions in the euro zone whose total assets exceed 30 billion euros or 20% of a country’s gross domestic product from autumn 2014. The negotiations between the EP and the ECB had focused in particular on the EP’s right to information (the ECB’s democratic accountability). The EP and the ECB have now agreed that the ECB has to allow the EP greater insight into banking supervision activity.

Up to the date on which the single supervisory mechanism comes into operation, the ECB will be preparing for its new role by setting the modalities of its supervisory activity as well as recruiting and training new staff. In the first half of 2014 it will examine the balance sheets of the banks that it will be supervising. The rules that will govern this Balance Sheet Assessment are currently being drawn up by the ECB and national supervisors. In terms of personnel, the ECB will be taking on around 1,000 new members of staff. Plans are already being drawn up for the recruitment process, which can formally begin once the Single Supervisory Mechanism (SSM) Regulation comes into force.

In the interview below BaFin President Dr Elke König offers her comments and says what steps she thinks should follow.

Interview with Dr Elke König:
"The starting signal for improvement in many areas"

Dr König, will all now be well again in the banking world?

As in the saying “It will be worth it in the end”? The European Parliament’s consent to the SSM Regulation was at least the starting signal, a milestone, for change and, hopefully, improvement in many areas. We need this single European supervision of credit institutions. In this way, the market will hopefully regain the trust and dependability that were lost in the crisis. But for this to work, we must succeed in creating an effective European supervisory system that functions smoothly from the very beginning.

So what needs to be done?

Now that the go-ahead has been given, we must push on quickly. The supreme body of the new European banking supervisory system, the Supervisory Board, must be constituted and its chairperson must be appointed as soon as possible. We should also begin straightaway with putting together the joint supervisory teams that will be responsible for supervising the significant institutions in future. For we won’t succeed without very close cooperation between the ECB and national supervisors.

What are the most urgent problems that the new European supervisory authority will have to tackle?

It has been given a very important role and an ambitious timetable. But, as the saying goes: “There is no second chance to make a first impression”. There are three things that I think must be dealt with rapidly: the creation of properly functioning structures, the recruitment of experienced personnel and the “comprehensive assessment”, in particular the assessment of the banks’ balance sheets. It is also important that monetary policy and supervision are kept separate. The Supervisory Board will keep a keen eye on this, and politicians are bound to as well.

How much work will be left for BaFin if the ECB oversees the major banks?

There will be no shortage of work for us. After all, we are part of the European System of Financial Supervision. The ECB needs our expertise, our experience and our closeness to institutions in order to be able to fulfil its new function. It is precisely for this reason that there will be joint supervisory teams to supervise the major banks. Know-how cannot be transferred by decree. In addition, not all banking supervision functions are being conferred on the ECB and not all banks will be subject to direct supervision by the ECB. It goes without saying that I would be pleased if “as much BaFin as possible” were to find its way into the future European banking supervision. We shall also continue to look after the many small and medium-sized banks, together with the Bundesbank. They, too, will have to take up the new regulatory challenges and need supervision.

Dr König, thank you for granting us this interview.