A critical analysis of the impact of the Single Supervisory Mechanism on the supervision of Malta’s banks

Abstract

The decision to setup and create a new form of European banking supervision has been the greatest step towards deeper economic integration and to restore financial stability in the Eurozone. The recent financial crisis has made it clear that a highly interconnected and integrated area such as the euro area needed a single supervisor and a stronger institutional financial framework to credibly address the supervisory weakness in the banking sector while certifying that banks are robust and able to withstand any future financial crisis. The creation of a banking union was considered the best way to strengthen the financial institutional framework with the Single Supervisory Mechanism representing its first pillar, which through the ECB would supervise the whole European banking sector and lay the way for the creation of a fully functioning banking union. The aim is to ensure the safety and soundness of the entire banking system through consistent supervision to increase financial integration and stability. The main aim of this dissertation is to critically assess the impact and effect that the SSM has on the supervision of Malta’s banks in particular, identifying the main challenges and changes that the local significant banks and national regulator are both facing to respond and meet new supervisory expectations and getting into grips with this new regime. This study will aim to provide an insight of how this mechanism operates and how the tasks between the ECB and national supervisors are distributed and affected within the SSM. Additionally, this study will explain the involvement of the JSTs who are now responsible for the supervision of significant institutions. Also, this dissertation will analyze how the local significant banks performed in the ECB’s Comprehensive Assessment which proved suite challenging due to its size, complex and detailed process.