The Supervisory Manual outlines the organization and functioning of the Single Supervisory Mechanism (SSM) as well as the methodologies and procedures for banking supervision in the euro area. It also explains how the SSM cooperates with other authorities within the broader institutional framework. Although it is not a legally binding document, it sets forth the approach taken by the SSM in carrying out its…
The document entitled “SSM Supervisory Manual - European banking supervision: functioning of the SSM and supervisory approach (2024)” is a guide published by the European Central Bank (ECB) - Banking Supervision (SSM) in January 2024. It comprises 117 pages, of which about 38 pages are provided here. The scope covers the organization, functioning, and supervisory approach of the Single Supervisory Mechanism (SSM) for banks in the euro area, including interactions with national competent authorities (NCAs), European institutions, decision-making procedures, international cooperation, and supervisory principles. The document is intended for risk management professionals, data scientists, and master’s students, and covers the current period with updates reflecting the ECB’s 2020 reorganization.
The guide presents the functioning of the Single Supervisory Mechanism (SSM), a central pillar of the European banking union, responsible for supervising credit institutions in the euro area. It details the SSM’s organization, distributing responsibilities between the ECB and national competent authorities (NCAs) according to the classification of banks into significant institutions (SIs) supervised directly by the ECB, and less significant institutions (LSIs) supervised by NCAs under ECB oversight (p. 6-7). The SSM aims to ensure consistent, rigorous, and transparent supervision, based on a common approach and principles of proportionality and risk management (p. 4-5). The ECB has an internal structure composed of six directorates general and one directorate, with joint supervisory teams (JSTs) combining ECB and NCA staff for the daily supervision of SIs (p. 8-12). Decision-making follows a formalized process, mainly through a non-objection procedure by the Governing Council after approval by the Supervisory Board, with internal (ABoR) and judicial appeal mechanisms (p. 14-29). Cooperation with other European and international authorities is essential, notably with the EBA, the Single Resolution Board, the European Systemic Risk Board, and non-EU authorities via memoranda of understanding (p. 30-38). The manual emphasizes the importance of transparency, political accountability, and strict separation between monetary and supervisory functions within the ECB (p. 7-9). Finally, supervisory activities are funded by annual fees levied on supervised entities, calculated according to their size and risk profile (p. 13-14). This updated guide replaces the 2014 version and reflects recent institutional developments, providing a clear and comprehensive framework for European banking supervision actors.
The manual was developed within the ECB’s transparency policy and aims to describe the SSM’s organization and methods, created after the financial crisis to strengthen banking supervision in the euro area. It responds to the need for harmonized, effective, and rigorous supervision to ensure financial stability and credit institution safety. The document specifies that the manual is not legally binding but constitutes a reference framework for supervisory practices, with the possibility of justified derogations. It fits within the context of the European banking union based on three pillars: the SSM, the Single Resolution Mechanism, and the future European Deposit Insurance Scheme. The manual updates information since the initial 2018 version, notably integrating the ECB’s 2020 reorganization, and defines the SSM’s principles, responsibilities, and procedures, as well as its relations with other national and European authorities. The scope covers supervision of significant and less significant institutions, international cooperation, decision-making processes, and appeal mechanisms. The document excludes legally binding aspects, which remain defined by applicable European law.
Organization and task allocation:
- The ECB directly supervises significant institutions (SIs), while national competent authorities (NCAs) supervise less significant institutions (LSIs) under ECB oversight. The ECB may resume direct supervision of LSIs in certain cases (p. 6-7).
- The SSM operates through close cooperation between the ECB and NCAs, notably via joint supervisory teams (JSTs) composed of ECB and NCA staff, responsible for the daily supervision of SIs (p. 8-12).
Internal organizational structure:
- Supervision is organized into six directorates general (DG/SIB, DG/UDI, DG/SPL, DG/HOL, DG/OMI, DG/SGO) and one directorate, each with specific responsibilities (p. 8-10).
- Horizontal functions ensure methodological consistency, technical support, and JST coordination (p. 11-12).
Principles of separation and independence:
- The ECB applies a strict principle of separation between its monetary and supervisory functions to avoid conflicts of interest, with precise rules on information sharing and staff organization (p. 8-9).
Decision-making process:
- Supervisory decisions are prepared by JSTs and other directorates, approved by the Supervisory Board, then adopted by the Governing Council via the non-objection procedure (p. 14-25).
- Emergency and delegation procedures exist to ensure efficiency and proportionality (p. 24-26).
- The right to be heard, access to the file, and clear reasoning are guaranteed in the decision-making process (p. 19-22).
- Internal appeal is possible before the Administrative Board of Review (ABoR), with judicial appeal before the Court of Justice of the European Union (p. 27-29).
Institutional cooperation:
- The SSM cooperates with numerous European authorities (EBA, ESRB, European Commission, Single Resolution Board) and international bodies (BCBS, FSB) via memoranda of understanding and coordination mechanisms (p. 30-38).
- Cooperation covers cross-border supervision, crisis management, anti-money laundering, and supervision of financial conglomerates (p. 30-34).
Human and financial resources:
- Resources are allocated according to a risk-based and proportionality approach, with an annual supervisory program (SEP) for each significant bank (p. 12-14).
- Supervisory funding is ensured by annual fees levied on supervised entities, calculated according to size and risk profile (p. 13-14).
Language and communication:
- English is the internal operational working language, while external communication respects EU language rules, with translation provided by the ECB if necessary (p. 26-27).
Transparency and accountability:
- The ECB is accountable to the European Parliament, the Council of the EU, national parliaments, and the European Court of Auditors, with regular reporting and audit mechanisms (p. 7-8).
Established facts:
- The SSM is an integrated structure combining the ECB and NCAs, with a clear allocation of responsibilities according to the classification of banks into SIs and LSIs (p. 6-7).
- Supervision relies on joint teams (JSTs) mixed ECB-NCAs, ensuring harmonized daily supervision (p. 10-12).
- The decision-making process is formalized, with a non-objection procedure by the Governing Council after Supervisory Board approval, ensuring transparency and accountability (p. 14-25).
- The ECB applies a strict principle of separation between its monetary and supervisory functions (p. 8-9).
- Cooperation with other European and international authorities is structured via memoranda of understanding and coordination mechanisms (p. 30-38).
Assumptions and interpretations:
- The manual assumes that the task allocation between ECB and NCAs, as well as close cooperation, allow effective and coherent supervision at the European level (p. 6-7, 12-13).
- The strict separation of functions within the ECB is interpreted as essential to guarantee independence and avoid conflicts of interest (p. 8-9).
- The non-objection procedure is considered an effective mechanism to balance speed and democratic control (p. 14-25).
Uncertainties:
- The manual does not detail precise management modalities for exceptional or crisis situations beyond emergency procedures (p. 24).
- The impact of international cooperation on effective supervision may vary according to jurisdictions and specific agreements (p. 30-38).
- Practical implementation of proportionality and risk management principles in resource allocation may present operational challenges (p. 12-14).
The manual concludes that the SSM constitutes a robust, transparent, and coherent framework for banking supervision in the euro area, based on clear organization, formalized decision-making processes, and close cooperation between the ECB, NCAs, and other authorities. It emphasizes the importance of maintaining strict separation between monetary and supervisory functions to preserve the ECB’s independence and credibility. The document recommends continuing the harmonization of supervisory practices, notably via joint teams and horizontal functions, as well as strengthening international and cross-sector cooperation to address systemic risks and potential crises. It insists on respecting procedural rights of supervised entities and on the need for effective and proportionate resource allocation. Finally, the manual calls for clear and multilingual communication adapted to stakeholders’ needs, while ensuring transparency and political accountability through regular reporting and control mechanisms.
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