1) What does SSM mean?
The abbreviation SSM stands for Single Supervisory Mechanism. This is the system of banking supervision in Europe, which consists of the European Central Bank (ECB) and the national supervisory authorities of the participating countries.
The SSM was founded on 4 November 2014 with the aim of harmonising the inconsistent supervision of banks in the eurozone. The financial and sovereign debt crisis from 2007 has shown that risks in the financial markets do not stop at national borders and that the response from fragmented supervision is limited. The SSM is therefore an important milestone of banking union that aims to strengthen resilience and safeguard economic stability on the eurozone. Ten years after it was founded, the SSM has achieved its most important objective: European banks are stable and safe. And: supervision has been harmonised in many areas, which allows it to implement a coordinated response in the event of a crisis.
2) What does the SSM do?
The SSM ensures that all banks adhere to the rules and have enough capital at their disposal to cover any financial risks. To achieve this, it can carry out audits, issue and withdraw licences as well as sanction banks that do not comply with the rules. The ECB monitors what are known as significant institutions. As of 1 March 2024, these comprise 112 banks each with total assets of 30 billion euros or more or are among the three most important banks in their country. All other banks are monitored by their national supervisory authorities.
In recent years, this approach has become more complicated because the SSM has tried to cover all possible scenarios with very detailed rules. For the significant institutions, in particular, this means a never-ending stream of requests for information, audits, detailed requirements and more requests for information, more audits and more requirements.
Like a corset that is too tightly laced, too much stability will sooner or later lead to the inability to move. Banks are more secure than ever and function well. It is time to pay tribute to the successes of the SSM’s past and, at the same time, sharpen the tools of the future and, where necessary, replace them with more efficient alternatives.
3) What will happen to the SSM?
Stability and competitiveness are two sides of the same coin: only stable banks survive in international competition. But: only banks that are internationally competitive, remain stable in the long term. In order to achieve both, the SSM should now leave the repair mode of the post-crisis years of the financial crisis behind. Instead of developing increasingly detailed rules, the focus must be on the most important risks.
The SSM should assume responsibility for appropriate supervision and regulation. Banks will then be able to assume responsibility for developing and implementing suitable solutions to everyday problems for their specific business models. Taking a risk-orientated and long-term approach will be key components of this.
