The Single Supervisory Mechanism : an analysis of the legal and practical Implications of this new supervisory structure

Abstract

Following the Great Recession of 2007, the entire financial sector has fallen under a great deal of scrutiny. Numerous factors have been deemed to be the cause of this financial turmoil but the role financial institutions, especially banks, have played in this regard has been very significant. With numerous economies facing total financial collapse due to the crisis which spread from banks to their respective Governments, or vice versa, action was deemed necessary for the safeguarding of future generations so that crises of this magnitude are never allowed to happen again. In the European Union, the crisis culminated in a currency and a sovereign debt crisis and direct action was deemed necessary to stabilise the financial sector and reaffirm consumer confidence. Consequently, the concept of a Banking Union was born. As a first step in this process, the Single Supervisory Mechanism was created, which through the ECB, would supervise the European Banking sector and lay the way for the establishment of a fully functioning Banking Union. This ambitious proposal is however not without its own challenges. Apart from practical considerations like as to how the ECB will manage to efficiently supervise this entire sector, legal concerns also exist as the ECB was originally created as a Central Bank to deal with monetary policy and not prudential supervision, all of which could have significant consequences should the Single Supervisory Mechanism fail in its role. It is thus absolutely critical that when the ECB takes on this new role, it is well prepared to take on all the challenges which it will face. European politicians must also ensure, that the new structure is legally stable so as not to create complications in the years to come.