The future of the SSM and banking in the Eurozone
One year on from the start of the Single Supervisory Mechanism (SSM), the European Central Bank (ECB) continues to develop and embed its supervisory approach. But what will the SSM look like in the future, and what will the implications be for banks’ business models and for the banking industry more broadly?
One year on from the start of the Single Supervisory Mechanism (SSM), the European Central Bank (ECB) continues to develop and embed its supervisory approach. In May, Deloitte’s paper ‘Getting to grips with the new regime’,1 explored the issues arising during this period of change, and identified the areas that banks should focus their efforts on as they adjusted to the new regime. There remains much to do, but the progress made so far has been good.
This paper takes a longer-term view. Even as they continue to tackle near-term challenges, many banks are asking what the SSM will look like in the future, and what the implications will be for their business models, and for the banking industry more broadly. Regulation is now very much a strategic consideration for banks, and the approach that supervisors take – and how banks respond – are particularly important.
The future shape of banking
Predictions are inherently uncertain, but there is plenty of information that can be used to piece together a view of the future. Among the features we expect are:
- More intrusive supervision, but greater consistency
- Potentially less recognition of individual bank’s circumstances
- Higher expectations in terms of regulatory management
- Greater emphasis on business models; and
- Less supervisory guidance.
Cross-bank thematic reviews will also be used increasingly as part of a broader move emphasising peer groups and supervisory benchmarking.
It is also important to look at the wider context. What will be the effect of competition and the changing shape of the banking sector on supervision in the SSM?
Alongside the changing regulatory landscape, rapid technological change and shifting consumer preferences are key disruptive forces.
What is the Banking Union?
The Banking Union emerged from a commitment by European Commission, the European Council and the European Parliament to respond to a range of post-crisis challenges by enhancing financial integration in the Eurozone. The first plans for establishing the Banking Union were published by the Commission in September 2012.
The objectives of the Banking Union broadly cover five deliverables:
- Contributing to the financial stability in the European Union (EU);
- Ensuring pan-EU supervision of the banking sector;
- Breaking the nexus between banks and sovereigns;
- Promoting greater financial integration; and
- Increasing the efficiency of the banking system.
The Banking Union spans three pillars all underpinned by the development of a Single Rulebook (encompassing banking prudential regulations):
- Supervision (the Single Supervisory Mechanism, SSM)
- Resolution (the Single Resolution Mechanism, SRM)
- Depositor protection (through the revised Deposit Guarantee Scheme Directive, DGSD).