EU financial regulatory intervention: Are we on the top of the prudential wave?
Christos Vl. Gortsos
Professor of International Economic Law, Panteion University of Athens
Visiting Professor, Europa-Institut, Universität des
Saarlandes, and Law Faculty, National and Kapodistrian University of Athens
The new EU framework pertaining to financial
regulation, supervision and oversight is a ‘child of crisis’ and, to be more
precise, two crises: the recent (2007-2009) international financial crisis, and
the current fiscal crisis in the euro area, which erupted in 2010. It addresses
most of the causes of these crises by introducing a set of extensive rules
aimed at three primary goals: enhancement of financial stability, of market
efficiency, transparency and integrity, and of consumer protection. It has also
established two pan-European mechanisms for the micro-prudential supervision
and resolution of (at least) systemically important credit institutions and
investment firms, within the framework of the European Banking Union.
Within this context, the present article focuses
mainly on the new aspects of EU banking regulation and supervision.
banking regulation and supervision
European Banking Union
Single Supervisory Mechanism
Single Resolution Mechanism
European Capital Markets Union
1. The new regulatory and supervisory framework: a general overview
1.1 A new legislative process
Since 2008, several legal acts have been
adopted by EU financial regulators (i.e.
mainly the European Parliament, the ECOFIN Council, the European Commission and
to a certain extent also the European Central Bank (‘ECB’)), which reshaped the
regulatory and supervisory framework pertaining to the EU financial system. The
legislative process for adopting such acts has also been improved. This is due
to two factors.
(a) The first is the amendment to the
Treaties through the Lisbon Treaty. According to Article 289 of the Treaty on the
Functioning of the European Union (TFEU),
in force since 2009, the European Commission maintains the right of initiative
for proposing legislative acts (the acts formerly called ‘basic legal acts’),
while the European Parliament and the Council have the main political
responsibility to adopt Regulations (which are directly applicable) and
Directives (which need to be transposed into national legislation).
The new Article
290 TFEU introduced the instrument of delegated acts, which may be adopted
by the Commission without following the ‘Comitology procedure’ (still necessary
only for the implementing acts under Article
291 TFEU, according to the provisions of Regulation (EU) No 182/2011 of the European Parliament and of the
Council “laying down the rules and general principles concerning mechanisms for
control by Member States of the Commission’s exercise of implementing powers”). This Article
provides that a legislative act of the European Parliament and of the Council
may delegate to the Commission the power to adopt such acts, including ex ante and ex post restrictions on this delegation.
Particularly as regards the provisions of
European financial law, in Declaration
No 39 annexed to the Treaties, the Commission states its intention:
continue to consult experts appointed by the Member States in the preparation
of draft delegated acts in the financial services area, in accordance with its
(b) The second factor is the adoption, on
24 November 2010, by the European
Parliament and the Council of three (3) Regulations establishing the
three ‘European Supervisory Authorities’ with a view to strengthening the
efficiency of micro-prudential financial supervision in the EU:
the European Banking Authority (‘ΕΒA’) under Regulation
(EU) No 1093/2010 of the European
Parliament and of the Council of 24 November 2010 “establishing a European
Supervisory Authority (European Banking Authority)(...)”,
the European Insurance and Occupational Pensions
Authority (‘EIOPA’) under Regulation
(EU) No 1094/2010 “establishing a
European Supervisory Authority (European Insurance and Occupational Pensions
the European Securities and Markets Authority (‘ESMA’)
under Regulation (EU) No 1095/2010 “establishing
a European Supervisory Authority (European Securities and Markets
These three Authorities, a
by-product of the 2009 de Larosière Report, are
mainly regulatory authorities with some specifically designated supervisory
powers. They succeeded and replaced the
three Committees (CEBS, CESR and CEIOPS), which were established on the basis
of the 2001 Report of the Lamfalussy Committee (“Final Report of the
Committee of Wise Men on the Regulation of European Securities Markets”). As a result:
‘sectoral approach’ with regard to European institutional arrangements
concerning the financial system’s micro-prudential supervision was maintained, and
the creation of the ESFS did not, literally
speaking, lead to the creation of supranational supervisory authorities of the
financial system at EU level.
The tone is set in recital 8 of each of the establishing Regulations, which stresses the need
to upgrade the role of the Lamfalussy Committees, since:
Union has reached the limits of what can be done within their context.”
In principle, however, financial micro-prudential supervision remained national, even
though financial regulation was for the most part gradually Europeanised. Padoa-Schioppa (2004, p. 121) refers to this state of affairs as ‘European regulation with national supervision’. In the same line, Lastra (2006, p. 298) characteristically notes:
is an inevitable tension in the current EU structure: a national mandate in
prudential supervision, combined with a single European currency and a European
mandate in the completion of the single market in financial services”.
These Regulations, along with Regulation
(EU) No 1092/2010 of the European
Parliament and of the Council “on
European Union macro-prudential oversight of the financial system and
establishing a European Systemic Risk Board” (ESRB), and Regulation (EU) No 1096/2010 of the Council “conferring
specific tasks upon the ECB concerning the functioning of the European Systemic
the proposals of the 2009 de Larosière Report into rules, and
the ‘European System of Financial Supervision’
(‘ESFS’), which entered into operation on 1 January 2011.
1.2 The main elements of the new regulatory and supervisory framework
In the author’s view, the legal acts adopted in
order to enhance the stability of the disrupted EU financial system, market
efficiency, transparency and integrity, as well as consumer protection in
financial services are categorised in two groups, since they address problems
relating to two different crises (even though the first partly triggered the second).
responses to the recent (2007-2009) international financial crisis
(a) The first group contains a set of
legal acts adopted as a regulatory response to the recent (2007-2009)
international financial crisis. For the most part,
regulatory measures in this set were taken over from the international
financial reform agenda, mainly the work orchestrated by the Financial
Stability Board (‘FSB’) and soft law rules adopted by international fora, such
the Basel Committee on Banking Supervision on micro-
and macro-prudential banking regulation, and
the International Organisation of Securities
Commissions (‘IOSCO’), whose work deeply influenced the full revision of EU
capital markets law (which is not the subject of this article).
Pure EU interventions were rare, with the
exception of Directives adopted in the field of consumer protection in
financial services and the new
Directive (2014/49/EU) on deposit guarantee schemes (‘DGSD’).
This crisis also highlighted the need for
improved transparency and monitoring not only in the traditional banking
sector, but also in areas where non-bank credit activities take place, known as
‘shadow banking’. Following consultation
on a Green Paper in March 2012, on 4 September 2013 the Commission adopted a Communication on “Shadow
Banking – Addressing New Sources of Risk in the Financial Sector”, setting out its roadmap to limit
the emergence of risks in the unregulated or less regulated financial system,
particularly risks of systemic nature through the shadow banking sector’s
interconnectedness with the banking system through contagion risk. On the same day, the
Commission also submitted a Proposal for a Regulation of the European Parliament and of the Council “on
Money Market Funds”, one of the actions
recommended by the above-mentioned Communication.
The issue whether banks should be allowed to provide investment services, and
to what extent, has been and still remains a source of major debate:
in some states (such as the EU member states), these services can be provided by banks unconditionally, according to the ‘universal banking system’, while
in others limitations are put in place.
This issue re-emerged in the wake of the recent (2007-2009) international financial crisis. The United
States have already enacted legislation limiting the power of banks to provide
investment services, according to the provisions of the ‘Volcker Rule’, which is
implemented by Title VI of the 2010 “Dodd-Frank Wall Street Reform and Consumer
Protection Act”. The same applies in the United
Kingdom on the basis of the ‘Vickers Report’, as well as in Belgium, France
In the EU, in November
2011, a High-level Expert Group was set up (“High-level Expert Group on
structural aspects of the EU banking sector”) in order to assess the need for structural reform of the EU
banking sector, chaired by Erkki Liikanen, Governor of the Bank of Finland
(hence also “Liikanen Group”). In particular, its mandate
consisted in determining whether, in addition to ongoing regulatory reforms,
structural reforms of EU credit institutions would strengthen financial
stability and improve efficiency and consumer protection.
On the basis of the Report
submitted by the Liikanen Group, on 29 January 2014, the
European Commission adopted a Proposal for a Regulation “on reporting and transparency of securities financing
prevent the largest credit institutions from engaging in
proprietary trading, and
give supervisors the power to require those credit
institutions to separate other risky trading activities from their
responses to the current fiscal crisis in the euro area
The second group contains legal acts adopted as
a regulatory reaction to the current fiscal crisis in the euro area, which became
manifest in 2010. In particular:
(a) The main by-product of this
response, as regards financial law, was the
establishment of the European Banking Union (‘EBU’), and, in particular, of:
the Single Supervisory Mechanism (‘SSM’),
the Single Resolution Mechanism (‘SRM’), and
the Single Resolution Fund (‘SRF’).
On the other hand, the ‘single market’ element
of the EBU, notably the new Capital Requirements Directive (‘CRD IV’), the Capital
Requirements Regulation (‘CRR’), the Bank Recovery
and Resolution Directive (‘BRRD’) and the DGSD, is a
by-product of the recent international financial crisis.
an overview of the legal acts pertaining to the EBU, see below Table 1.
The creation of the
‘EBU’ is a very ambitious political initiative, which was tabled at the Euro
Area Summit of 29 June 2012, amidst the current fiscal crisis in the euro area.
The main rationale behind this initiative is summarised in the following
sentence of the Summit’s Statement:
“We affirm that it is imperative to break the vicious
circle between banks and sovereigns.”
(b) A related issue was whether the
recapitalisation of credit institutions faced with insolvency (albeit viable
according to the evaluation of supervisory authorities) could be assigned directly to the European Stability
Mechanism (the ‘ESM’), thus curbing the public debt of Member States
in which such credit institutions are incorporated. The ESM, based on an Intergovernmental Treaty signed by the
nineteen (19) euro area Member States, is a successor to the European Financial
Stability Facility (‘EFSF’), and is fully operative since 8
Its current legal basis is (the new) Article
136, paragraph 3 TFEU.
(i) Under the regime in place until
December 2014, the ESM could provide financial assistance to euro area Member
States for the purpose of bank recapitalisation, albeit only indirectly. However, such assistance
increases the Member States’ public debt.
(ii) On 10 June 2014, the euro area
Member States reached a preliminary agreement on a new instrument, the ESM
‘Direct Recapitalisation Instrument’ (the ‘DRI’). This instrument became fully
operational on 8 December 2014, after the completion of the
necessary national procedures by the euro area Member States, by a unanimous Resolution of the ESM Board of Governors. The aim of the DRI is the preservation of the
financial stability of the euro area as a whole and of its Member States, by
catering for those specific cases in which an ESM Member experiences acute
difficulties with its financial sector that cannot be remedied without
significantly endangering its fiscal sustainability due to a severe risk of
contagion form the financial sector to the sovereign. Thus, such financial
assistance must seek to remove the risk of contagion from the financial sector
to the sovereign, thereby reducing the effect of a vicious circle between a
fragile financial sector and a deteriorating creditworthiness of the sovereign.
1.3 The threat of over-regulation
It would necessitate a precise cost-benefit
analysis of each and every single legal act adopted, as well as their actual
implementation and enforcement, in order to assess adequately the overall
efficiency and effectiveness of the new EU financial framework (for a brief
cost-benefit analysis, see just below under 3). In principle, however, the
legal framework pertaining to financial regulation, supervision and oversight
is definitively more robust.
Nevertheless, the use of the term
‘over-regulation’ is not inappropriate in this case. In this respect, the
following remarks deserve attention:
(a) EU financial law (mainly
administrative in nature, if viewed from the perspective of national law)
currently covers almost every single aspect of financial activity. More
regulation, however, does not linearly lead to higher levels of financial
stability, market efficiency, and consumer protection. Effective supervision
and enforcement are conditions sine qua
non towards that end. These have to be ensured by:
the ECB (within the SSM),
the national competent supervisory authorities in the
fields of banking (again within the SSM), capital markets and insurance, as
to the extent they are competent for this, the EBA,
the ESMA and the EIOPA.
(b) Financial actors are confronted
with a heavy regulatory burden, in terms of both systems and procedures, and
(any other) cost. This is a result of the overall agenda which they have to
comply with. The type of business model is decisive on this. Obviously,
institutions and groups operating according to the universal banking model are
more heavily affected. The same applies, a
fortiori, to systemically important financial firms, which are the
addressees of rules specifically designated for them.
(c) The compliance costs imposed on
financial actors (including the heavy cost of raising substantial amounts of
own funds to meet the new capital adequacy requirements) under the new EU
financial framework will inevitably have a negative impact on the pricing of
the financial services they provide (mainly in lending and capital markets
transactions), no matter how much of the regulatory cost will be internalised
by the actors themselves (to the detriment of their shareholders in this case).
When assessing the efficiency of the reform
agenda, relative compliance costs imposed on EU financial actors must also be
taken into account within a globalised and highly competitive environment. Accordingly,
in the presence of differences in regulatory costs between the EU and other
international financial centres, a significant part of financial activity will
tend to migrate outside the EU (if it has not already done so). This makes an
even stronger case for enhanced international cooperation and coordination,
placing it very high on the agenda of EU institutions and bodies in the context
of their international discussions.
2. Resilience of the new framework
(a) Traditionally, the majority of
regulatory reforms undertaken in order to address (recent and/or current)
crises and problems in the financial sector are mainly backward-looking.
Accordingly, new institutions and rules are usually ‘children of crisis’. The
conditions that led to the establishment of the Basel Committee (in 1974), the
FSB and the G20 (in 1999) and the adoption
of the ‘Basel I’ and ‘Basel III’ Capital Adequacy Frameworks are only the most
striking examples thereof.
In addition, it is reminded that the use of
macro-prudential financial oversight was strongly advocated by international
financial institutions (such as the BIS) since the beginning of the decade of
2000, but was only
included in the agenda after the recent (2007-2009) international financial
(b) As already mentioned, the new EU
financial framework is also the child of not one but two crises. It was adopted
hastily, under enormous political pressure (reflecting a widespread loss of
public confidence in the financial system, at least in some Member States). It
addresses most of the causes of these crises, by introducing a set of extensive
rules aimed at three (3) primary goals:
enhancement of financial stability,
enhancement of market efficiency, transparency and
enhancement of consumer protection.
It also established two pan-European mechanisms
for the micro-prudential supervision of (at least) systemically important
credit institutions and the resolution of credit institutions and investment
firms, respectively, to assist in the achievement of these goals.
(c) To the extent that the new EU
financial framework extensively regulates and thus restrains financial activity
(maybe to the limits of a market economy) in order to ensure the achievement of
its primary goals, it can be argued that the overall risk exposure of the EU
financial system is curtailed. Nevertheless, it would be premature to judge its
resilience under circumstances of new, unforeseeable crises. Apart from stress arising
from inside the system (which is the main focus of the new framework), crises
might also be due, indicatively, to:
persistently negative developments in the real sector
of the EU economy (which would strongly affect all sectors of the financial system),
a generalised sovereign debt crisis (thus far
the negative spill-over effects of geopolitical
developments in the region (an aspect which until recently was not taken into
from inappropriate macroeconomic (fiscal and/or monetary)
(d) The flexibility enabling it to
withstand a new crisis on the basis of
the existing legal framework will
heavily depend on the way supervisory, resolution and other designated
authorities will exercise the powers conferred upon them, and the effectiveness
of their cooperation. The complicated procedures that have been introduced in
certain cases (most strikingly, bank resolution procedures under the SRM) raise
doubts as to the effectiveness of actions to be undertaken (often within a very
short period of time, e.g. resolving a bank over a week-end).
Another aspect of flexibility is the adaptability of the existing legal framework.
firstly, on the effectiveness of the legislative
on the ability of EU financial regulators to
recognise, without undue delay, imminent threats and react promptly, since recognition
and reaction lags are harmful.
3. A brief cost-benefit analysis
3.1 The benefits
(a) The main comparative advantages of
the new EU financial framework are the following:
the positive signalling effect of a prompt and mainly
decisive regulatory response by European institutions to the causes of the two
its adoption without an amendment to the TFEU, which
would compromise the speed of reform and the flexibility to resort to an
Intergovernmental Agreement (on the SRF, even with abstention of two Member
States) if the TFEU did not provide the appropriate legal basis,
its compliance with international financial standards,
subject to the constraints arising from the fact that other international
financial centres may not have complied with such standards, and
its ‘unbiased approach’, in the sense that new rules
have been adopted across the board, applying to all four sectors of the
financial system (banking, capital markets, private insurance, and payments).
In addition, a ‘two-speed approach’ to
regulation has been avoided, since the majority of the rules of the new EU
financial framework, and definitely those on the single market, apply to all 28
Member States. It arises only with regard to:
micro-prudential supervision, to the extent that the
SSM Regulation applies in principle only to ‘participating’ Member States (i.e. those whose currency is the euro),
resolution as regards the application of the SRM and
the SRF (but not of the BRRD).
(b) In the author’s view, however, the
biggest achievements are two: the establishment of the SSM and the adoption of
the resolution framework. In particular:
(i) The academic debate on the creation
of supranational supervisory authorities for the European financial system can
be basically traced back to the early 2000s (after the start of the EMU), and
its prospect was even embedded in the Maastricht Treaty (Article 105, paragraph
6 TEC, currently Article 127, paragraph 6 TFEU). At a political level, this
prospect was put forward, for the first time, in 2009 by the de Larosière Report, following the
onset of the recent international financial crisis, only to be rejected.
It was the current fiscal crisis in the euro
area which acted as a catalyst for conferring certain designated banking
supervisory tasks on the ECB within the framework of the SSM. This development
alleviates one of the main asymmetries of the EMU, notably that the monetary
and foreign exchange policies in the euro area are conducted at supranational
level, while banking supervision remained national. The crisis clearly revealed
the importance of the EBU to the stability of the euro area and to the
effective transmission of a single monetary policy, whose conduct within the
EMU was complicated due to the fragmentation between the financial systems of
euro area Member States.
(ii) The second major achievement was
the adoption of the resolution framework. When one or more credit institutions
are exposed to insolvency, and if a ‘private sector solution’ cannot be found,
supervisors and governments face a ‘trilemma’ between the following options:
to wind up the credit institution(s), in which case
they risk negative contagion to the banking system (in the form of bank runs),
and the deposit guarantee scheme must be activated, or
to recapitalise the credit institution(s) by means of
public funds, i.e. the main option during the initial phase of the crisis but
subject to budgetary constraints and strong public disapproval and pressure, or
to resolve the credit institution(s).
With the implementation by 2015 of the BRRD
Member States have at their disposal, for the first time, a comprehensive set
of rules (harmonised at EU level) on the recovery and resolution of credit
institutions (and investment firms), which also apply to systemically important
ones (the main target group). Furthermore, the establishment of the SRM (whose
implementation commences in 2016) centralises key competences and resources for
managing the failure of credit institutions and investment firms in the euro
area and in other Member States participating in the SSM and tackles the risk
of further fragmentation of the single market resulting from only national
financial supervisors being in charge of resolution of national financial
There are good reasons to expect that
resolution will become the new norm in the context of the above trilemma.
3.2 The costs
(a) The major − though intended – drawback
of the regulatory agenda is a by-product of the conditions under which it was
adopted: the very short time frame. Almost none of the legal acts adopted contain a robust cost-benefit
analysis of their impacts.
(b) Other comparative costs are the
as a result of the rapid adoption and implementation
of several legal acts simultaneously, an enormous compliance burden imposed on
in more detail, a need for credit institutions to
raise significant amounts of new capital within a relatively short period of
time, and meet the new liquidity requirements imposed on them, leading some to
reconsider their business model, and
the fact that the achievement of its three primary
goals may compromise, at least in the short run, the positive contribution of
the financial system (and in particular of its banking sector) to the real
sector of the economy, in terms of both borrowing costs and available credit.
(c) Finally, an inconsistency problem
arises to the extent that all legal acts of the new EU financial framework contain
national discretions to be used either by all of the 28 Member States, when
transposing EU Directives into their national legislation, and by their supervisory,
resolution or other designated authorities according to specific provisions of
Directives and Regulations. It is then up to the EBA, the ESMA and the EIOPA to ensure that EU financial law is
implemented in a uniform manner across all Member States through its technical standards
and its soft law instruments.
4. In particular: an evaluation of the SSM framework
4.1 General considerations
As already mentioned, the European Banking Union (EBU) and the SSM are ‘children’
of the current fiscal crisis in the euro area, which erupted in 2010. The
European Commission’s proposal for the creation of the SSM, on the basis of the
political decisions taken on 29 June 2012, was tabled on 12 September
2012 and was completed in October 2013 with the adoption of the SSM Regulation
of the Council, with the extensive influence of the European Parliament during
the ‘trialogue’ discussions. It initiated a process that will bring about a
significant breakthrough in the functioning of the banking system in the euro
area, without TFEU amendment.
this context and according to Article
1, first sub-paragraph, the SSM Regulation confers on the ECB specific
tasks “concerning policies relating to
the prudential supervision of credit institutions” (a passage taken over verbatim from Article 127, paragraph 6
with a view to contributing to the safety
and soundness of credit institutions and the stability of the financial system
within the EU and each Member State, which is the objective of the ECB
under the SSM Regulation, and
fully taking account of and having the
duty of caring for the unity and integrity of the internal market, based on
equal treatment of credit institutions with a view to preventing regulatory
The micro-prudential supervision of certain
(and in particular the most systemically important) credit institutions
incorporated in euro area Member States was conferred on 4 November 2014 on the
ECB, which is called upon to carry out the relevant specific tasks in cooperation
with the national competent authorities within the SSM, along with the
other tasks already conferred upon it, particularly in relation to:
the definition and implementation of the single
monetary policy in the euro area (within the framework of the ESCB), and
the contribution to the macro-prudential oversight of
the European financial system according to the provisions of Council Regulation (EU) No 1096/2010.
(c) The SSM Regulation’s framework is a
substantial step for the creation of the EBU, the final stage of which includes
the setting up, as already mentioned, at euro area level of:
a Single Resolution Mechanism by 1 January 2016,
a Single Resolution Fund for covering funding gaps,
provided that a decision is made for the resolution of unviable credit
institutions (and/or investment firms) by 1 January 2016 as well, and
a single deposit guarantee scheme (still pending).
The establishment of the SSM, the SRM and the
SRF constitute bold institutional novelties. Especially the creation of the SSM
is a reform element, that of improved financial supervision, that was not
addressed adequately during the first sub-period since 2008. It should be
recalled that the 2009 de Larosière Report,
which was elaborated in order to identify the causes of the recent (2007-2009)
international financial crisis, highlighted weak financial supervision as a
worth recalling that even this Report concluded that (contrary to
macro-prudential oversight) micro-prudential supervision should not be assigned
to the ECB, a proposal that has been rejected with the
establishment of the SSM.
However, resolution tasks remaining on a
national scale, while supervision is centralised, would pose considerable
risks. In this regard, the International Monetary Fund has starkly stated that:
without a strong SRM complementing the SSM, the credibility and effectiveness
of the banking union would be jeopardized”.
Thus, the SRM should be viewed as supplementary
to the SSM and these two components of the EBU should be considered together,
as shared liability for bank resolutions requires centralised supervisory
oversight. Additionally, in
the field of burden sharing, which has been an essentially contested point of
resistance to establish the EBU, the SRF constitutes a solid institutional response and one of the
remedies against the fragmentation of the single market.
establishment of the EBU is also the driving force behind the very recent
discussions pertaining to the creation of a European Capital Markets Union
(‘CMU’). On 22 October 2014, during his
speech at the Joint EIB-IMF High Level Workshop, Yves Mersch, member of the
Executive Board of the ECB, highlighted the possible, and desirable,
infrastructure of an upcoming CMU, defining it as the proper follow- up to the
sea change the EBU brought to the European banking and financial markets and as
an appropriate action in the struggle to restart growth in the heavily
traumatized European economy, which is, currently, described as “a plane flying on one engine, the bank
4.2 A brief cost-benefit analysis
4.2.1 The benefits
In principle, the provisions of the SSM
Regulation are positively evaluated by the author:
(a) The ECB’s function as supervisory
authority over credit institutions in participating Member States is expected
to have several positive effects. Without doubt, the ECB has the necessary
expertise for discharging supervisory tasks over euro area credit institutions,
particularly taking account of:
its unquestionably successful contribution to the
management of the recent international financial crisis, and
its substantial contribution to addressing the current
fiscal crisis in the euro area as well.
(b) There is no doubt that the legal
acts adopted constitute a development of utmost importance to the EU internal
market, and beyond. Once the authorisation and micro-prudential supervision of
credit institutions incorporated in participating Member States is assigned to
the ECB, government influence over credit institutions in these Member States
will be significantly weaker.
The conditions under which these credit
institutions will invest in domestic sovereign bonds is expected to change
substantially, since their dependence on Member States’ influence (where
applicable) will be kept under bounds. Weaning national banking systems from
government influence could thus become an important springboard for creating
institutional conditions leading to an EU fiscal union, provided the necessary
political will exists.
Here, it is worth pointing out the need to
amend, in due course, the provisions of the CRR, which stipulate, in relation
to the calculation of capital requirements for credit risk (mainly under the
Standardised Approach, still used by several credit institutions, especially
the least sophisticated ones), that claims on Member State governments, if
denominated in the local currency, have a zero percent (0%) risk weight.
experience from the ‘voluntary’ haircut on Greek government bonds has proven
that these provisions are now ineffective (apart from the fact that credit
institutions are given perverse incentives when implementing capital adequacy
rules). Greek credit institutions
suffered extremely severe losses from their participation in the Private Sector Involvement (‘PSI’) as far as their
holdings of Greek government bonds are concerned. On 20 April 2012, the four
(4) largest Greek credit institutions (representing more than 60% of the Greek
banking sector’s assets at that time) announced losses of €27.9 billion, which
totally depleted their own funds and led to their recapitalisation by public
funds through the Hellenic Financial Stability Fund.
The ECB has been granted extensive powers in order to pursue its objectives and
fulfil its tasks under the SSM Regulation. These include:
investigatory powers, including requests for the
provision of information, the conduct of general investigations and the conduct
of on-site inspections,
specific supervisory powers with regard to the
authorisation of credit institutions and the assessment of acquisitions of
qualifying holdings in them,
supplementary supervisory powers, and
the right to impose administrative sanctions.
Accordingly, mergers and acquisitions in the
banking sector will be subject to approval by the ECB rather than national
competent authorities. With this in mind, the European banking landscape will
be shaped at supranational level in the next few decades, and, most definitely,
this decade. In the author’s view, this may lead to a greater degree of
concentration in the European banking system and, as a result, to a very
significant decline in the number of credit institutions operating across euro
area Member States.
(d) Of particular importance, from an
institutional point of view, are also the SSM Regulation’s provisions with
regard to the independence and accountability of the ECB as a supervisor. The Regulation
reaffirms the independence of the ECB, as laid down in the TFEU and the
Statute, and enhances its accountability vis-à-vis
not only the EU institutions (and in particular the European Parliament on the
basis of the provisions of the relevant Interinstitutional Agreement), but also
the national parliaments.
Nevertheless, the new institutional and
regulatory framework needs to be treated with some scepticism as well. There
are two main reasons for this:
(a) Conferring supervisory competences over financial
system participants to a monetary authority generally raises concerns of
conflicts of interests, particularly putting into question the ECB’s ability,
in its capacity as monetary authority, to consistently pursue its primary
objective of maintaining price stability. There is no doubt
that the provisions on the separation of monetary policy and banking supervision
functions, a central principle of the SSM Regulation (Article 25), is a safeguard
embedded into the new framework in order to avoid such conflicts and the
resulting potential reputational risk for the ECB.
In that respect, it should also be taken into
account that to date the ECB, as an institution, is deemed both efficient and
credible by market participants by reason of its successful conduct of monetary
policy. This ‘accumulated’ credibility, at least initially, should also benefit
the conduct of its new supervisory tasks.
(b) One cannot preclude the (undesirable) eventuality of
one or more systemically important financial institutions under ECB supervision
becoming insolvent in the first few years of the ECB’s term of office as supervisory
authority, which might also be attributed to a deficient performance of its
duties. In such a case, the ECB’s reliability as an efficient monetary
authority would be strongly called into question (not only in terms of
substance, but mainly from a political point of view), with all the negative
consequences that this would entail for the sustainability of the euro area.
This aspect of reputational risk is, of course,
a visible risk for all central banks with statutory competence on
micro-prudential supervision over credit institutions, and it is one of the
main concerns as to the assignment of such competences to them. Ultimately, the onus of the efficient performance of the
extensive range of tasks that have been conferred on the ECB will be on the ECB
5. An assessment
In the author’s opinion, the new framework, which
applies to all 28 EU Member States, with the exception of the rules on the EBU institutions
(SSM, SRM, and SRF) that are confined mainly to euro area Member States, is characterised by
(i) It is more robust, consistent in
principle, and has curtailed the overall risk exposure of the EU financial
(ii) Its biggest achievements are the
establishment of the Single Supervisory Mechanism (SSM) and the adoption of the
resolution framework (BRRD).
(iii) Its major − though intended −
drawback is the very short period of time within which it was adopted (albeit
justified given the circumstances under which it was introduced).
(iv) The legislative process has definitely
been improved, enabling the adoption of rules by EU institutions with a more
active involvement of supervisory bodies, through the three ‘European
Supervisory Authorities’ (EBA, ESMA and EIOPA), which de facto have definitely superior technical knowledge of the
(v) It transfers considerable powers
from Member States to EU institutions and bodies, mainly within the
institutional framework set by the Treaties.
(vi) It imposes substantial compliance
costs on financial actors, including a heavy cost of raising more own funds to
meet capital adequacy requirements.
(vii) Finally, it is also worth
pointing out the following on this new framework:
it would be premature to judge its resilience under
circumstances of new, unforeseeable crises,
the framework is too recent to be in need of immediate
revision, even though developments in the relevant international agenda must be
constantly kept under close watch,
its flexibility enabling it to withstand a new crisis
must be assessed both on the basis of the existing legal framework and with
regard to its adaptability, and
in the light of differences in regulatory costs
between the EU and other international financial centres, the case for enhanced
international cooperation and coordination is even stronger in order to avoid
J.-H. (2015a): Komplexitätsbewältigung durch Verwaltungsverfahren? Krisenbewältigung und
Krisenprävention nach der EU-Bankensanierungs- und -abwicklungsrichtlinie, Zeitschrift für das gesamte Handelsrecht und
Wirtschaftsrecht (ZHR), issue 1 (forthcoming)
Binder, J.-H. (2015b):
To Ring-Fence or Not, and How? Strategic
Questions for Post-Crisis Banking Reform in Europe, available at: http://ssrn.com/abstract=2543860
J.-H. (2013): Auf dem Weg zu einer
europäischen Bankenunion? Erreichtes, Unerreichtes, offene Fragen, Zeitschrift für Bankrecht and Bankwirtschaft,
25. Jahrgang, Heft 5, S. 297-372
Borio, C. (2008): The Financial Tturmoil of 2007-?: A Preliminary Assessment and Some Policy Considerations, BIS Working Papers, No 251, Bank for International Settlements, March
C. (2003): Towards a Macro-Prudential Framework for Financial Supervision and
Regulation?¸ BIS Working Papers,
No 128, Bank for International Settlements, February
Brescia Morra, C. (2014): From the Single Supervisory Mechanism to the Banking Union. The role of
the ECB and the EBA, Working paper No 2, Luiss Guido Carli School of
European Political Economy, Luiss University Press, Italy
Breuss, F. (2013): European Banking Union, WIFO
Working Papers, No. 454, Austrian Institute of Economic Research, September
P. (2010): The Lisbon Treaty: Law, Politics and Treaty Reform, Oxford University Press, Oxford – New
Bundesbank (2013): Progress towards a European banking union, Annual Report 2013
Eichengreen, B., Feldmann, R., Liebman, J., von
Jürgen, H. and Ch. Wyplosz (2011): Public Debts: Nuts, Bolts
and Worries, Geneva Report on the World Economy 13, International Center
for Monetary and Banking Studies (ICMB), Geneva, Switzerland
Bank (2011): The
Monetary Policy of the ECB, European Central Bank, third edition, May,
Parliament (2014): The (not so) Unconventional Monetary Policy
of the European Central Bank since 2008- In-depth Analysis, Directorate
General for Internal Policies, IP/A/ECON/2014-02
Understanding the New Institutional Architecture of EU Financial Market
Supervision, in Wymeersch, Ed., Hopt, K.J. and G. Ferrarini (editors): Financial Regulation and Supervision - A
Post-Crisis Analysis, Oxford University Press, Oxford, Chapter 5, pp.
Ferran, E. (2004): Building
an EU Securities Market, Cambridge University Press, Cambridge
E. and V. Babis (2013): The European
Single Supervisory Mechanism, Legal Studies Research Paper Series,
University of Cambridge, Faculty of Law, Paper No. 10/2013, March, available
and L. Chiarella (2013): Common Banking Supervision in the Eurozone: Strengths and Weaknesses,
European Corporate Governance Institute, Working Paper Series in Law No
C.A.E. (2009): The Regulatory Response to the
Financial Crisis, Edward Elgar, Cheltenham, UK – Northhampton, MA, USA
Ch.V. (2014a): The new EU Directive (2014/49/EU) on deposit guarantee schemes: an
element of the European Banking Union, Nomiki Bibliothiki,
Gortsos, Ch.V. (2014b): The European Banking Union: A comprehensive overview of its legal framework, Journal of Financial Law, 2nd
quarter, Nomiki Bibliothiki, Athens, pp. 197-211
Ch.V. (2013): The Impact of the Current
Euro Zone Fiscal Crisis on the Greek Banking Sector and the Measures Adopted to
Preserve its Stability, in: Hieronymi, O. and C.A. Stephanou (2013, editors): International
Debt: Economic, Financial, Monetary, Political and Regulatory Aspects,
Basingstoke UK: Palgrave Macmillan, London, pp. 164-188
Gortsos, Ch.V. (2012): Fundamentals of Public International
Financial Law: International Banking Law within the System of Public
International Financial Law, Schriften des Europa-Instituts der
Universitäts des Saarlandes - Rechtswissenschaft, Nomos Verlag, Baden-Baden
Gortsos, Ch.V. (2011): The European Banking Authority within the
European System of Financial Supervision, ECEFIL Working Papers, No. 1,
August, available at: http://
Ch.V. (2010): The Proposals of the Larosière Group on the Future of Financial
Supervision in the European Union, in Giovanoli, M. and D. Devos (2010,
editors): International Monetary and Financial Law: The Global
Crisis, Oxford University Press, Oxford – New York, pp. 127-145
Hadjiemmanuil, Ch. (2006): Financial Services, in Chalmers, D.,
Hadjiemmanuil, Ch., Monti, G. and A. Tomkins (2006, editors): European
Union Law, Cambridge University
Press, Cambridge, New York, Melbourne, Madrid, Cape Town, Singapore, São Paolo,
Chapter 18, pp. 781-829
Monetary Fund (2013): Euro area policies, 2013
Article IV Consultation, IMF Country Report No. 13/231, Washington, D.C.
(2014a): A New Start for Europe: My Agenda for Jobs,
Growth, Fairness and Democratic Change, Political Guidelines for the next
European Commission - Opening Statement in the European Parliament Plenary
Session, p. 7, available at: http://ec.europa.eu/priorities/docs/pg_en.pdf.
letter to Johnathan Hill – Commissioner for Financial Stability, Financial
Services and Capital Markets Union, available at: http://ec.europa.
R.M. (2013): Banking Union and Single Market: Conflict or Companionship?, Fordham
International Law Journal, Volume 36, pp. 1189-1223
Lastra, R.M. (2006): Legal
foundations of international monetary stability, Oxford University Press, Oxford-New York
R.M. and J.V. Louis (2013): European
Economic and Monetary Union: History, Trends, and Prospects, Yearbook of Economic Law, pp. 1-150
R.M. and G. Wood (2010): The
crisis of 2007-2009: nature, causes and reactions, Journal of International Economic Law, vol. 13, n. 3, September,
Oxford University Press, Oxford, September, pp. 531-550
Louis J.-V. (2015): BCE -
Indépendance et responsabilité, Mélanges en l΄honneur du professeur Catherine
Louis J.-V. (2014): La
difficile naissance du mécanisme européen de résolution des banques, Cahiers
de droit européen, 2014, 1, pp. 7-20
Louis J.-V. (2012): Vers une
Union bancaire, Cahiers de droit européen, 2012, 2, pp. 289-304
Louis J.-V. (2010): The implementation of the Larosière report: a progress report, in
Giovanoli, M. and D. Devos (2010, editors): International
Monetary and Financial Law: The Global
Crisis, Oxford University Press, Oxford - New York, pp. 146-176
Y. (2014): Capital markets union – the “Why”
and the “How”, Speech at the Joint EIB-IMF High Level Workshop, Brussels, 22 October, available at: http://www.ecb.europa.eu/press/key/date/2014/html/sp141022_1.en.html.
Moessner, R. and
W. Allen (2010):
Banking Crises and the International
Monetary System in the Great Depression and now, BIS Working Papers, No
333, Bank for International Settlements, December
Moloney, N. (2012): Supervision in the Wake of the Financial Crisis: Achieving Effective ‘Law in Action’ - A Challenge for the EU, in Wymeersch,
Ed., Hopt, K.J. and G. Ferrarini (2012, editors): Financial Regulation and Supervision - A Post-Crisis Analysis,
Oxford University Press, Oxford, Chapter 4, pp. 71-110
Norberg, J. (2009): Financial Fiasko: How America’s infatuation with homeownership and easy
money created the economic crisis, Cato Institute, Washington, D.C.
T. (2004): Regulating Finance, Oxford University
Ch. and G. Zagouras (2012): The European Framework for Macro-Prudential Oversight, in Wymeersch,
Ed., Hopt, K.J. and G. Ferrarini (2012, editors): Financial Regulation and Supervision - A Post-Crisis Analysis,
Oxford University Press, Oxford, Chapter 6, pp. 159-171
R.A. (2010): The Crisis of Capitalist
Democracy, Harvard University Press, Cambridge-Massachussets - London,
(2010): Fault Lines: How Hidden Fractures Still
Threaten the World Economy, Princeton University Press, Princeton
Saunders, A. and I. Walter (1994): Universal Banking in the United States, What
could we gain? What could we lose ?, Oxford University Press, New York - Oxford
Schoenmaker, D. (2013): Post-Crisis Reversal in Banking and Insurance Integration: An Empirical
Survey, Economic Papers 496/April 2013
Smits, R. (2010): European Supervisors in the Credit Crisis: Issues of Competence
and Competition, in Giovanoli, M. and D. Devos (2010, editors): International Monetary and Financial Law:
The Global Crisis, Oxford University Press, Oxford - New York, Chapter 15,
Smits, R. (1997): The European Central Bank -
Institutional Aspects, Kluwer Law International, The Hague
Building Firewalls: European Responses to the Sovereign Debt Crisis, in
Hieronymi, O. and C.A. Stephanou (2013, editors): International Debt: Economic, Financial, Monetary, Political and
Regulatory Aspects, Basingstoke UK: Palgrave Macmillan, London, pp. 127-158
A. (2008): Restoring
International Financial Stability: Five Guidelines for Regulatory Reform, paper
prepared for the conference “Building an
International Monetary and Financial System for the 21st Century: Agenda for Reform”, The
Reinventing Bretton Woods Committee, New York, November
J. (2010): Lessons from the Crisis, in: Dewatripont, M., Rochet, J-Ch. and J.
Tirole: Balancing the Banks: Global
Lessons from the Financial Crisis, Princeton University Press, Princeton
and Oxford, chapter 2, pp. 10-77
Van Rompuy Report (2012): Towards a Genuine Economic
and Monetary Union, EUCO 120/12
single supervisory mechanism or “SSM”, part one of the Banking Union,
Working Paper Research No 255, National Bank of Belgium, Brussels
European Financial Supervisory Authorities or ESAs, in Wymeersch, Ed., Hopt,
K.J. and G. Ferrarini (2012, editors): Financial
Regulation and Supervision - A Post-Crisis Analysis, Oxford University
Press, Oxford, Chapter 9, pp. 232-317
Ch., Collignon, S., Gros, D. and A. Belke (2011, editors): The ECB, the EFSF and the ESM - Roles,
Relationships and Challenges, Directorate General for Internal Policies
Policy Department A: Economic and Scientific Policies, Economic and Monetary
Affairs Committee, European Parliament, December, available at: http://www.europarl.europa.eu/RegData/etudes/note/join/2011/464463/IPOL-ECON_
Trebesch, Ch. and and G.M. Gulati (2013): Managing Holdouts: The Case of the 2012 Greek
Exchange, in Lastra, R.M. and L. Buchheit (2013, editors): Sovereign Debt Management, Oxford University Press, Oxford, Chapter
3, pp. 25-38
The key legal sources of the three main
pillars of the European Banking Union
supervision and regulation of credit institutions
non-viable credit institutions
European ‘Single Mechanisms’
Council Regulation (EU) No
1024/2013 (‘SSM Regulation’)
ECB Regulation (EU) No 468/2014 (‘SSM Framework Regulation’)
other ECB legal acts (see below
Resolution Mechanism and Fund:
· Regulation (EU) No 806/2014 of the European Parliament and of the
Council (‘SRM Regulation’), and Commission
delegated and implementing acts
· Intergovernmental Agreement (2014) (‘SRF’)
initiatives as yet
Harmonisation of substantive rules (‘single rulebook’)
Regulation (EU) No 575/2013 of the
European Parliament and of the Council (‘CRR’),
and Commission delegated and implementing acts
Directive 2013/36/EU of the
European Parliament and of the Council (‘CRD
IV’), and Commission delegated and implementing acts
Directive 2014/59/EU of the
European Parliament and of the Council (‘BRRD’),
and Commission delegated and implementing acts
Directive 2014/49/EU of the European Parliament and of
the Council, and a Commission delegated act
Legal acts of the ECB
on the Single Supervisory Mechanism
(other than the ECB Framework Regulation)
Legal basis (Article
of the SSM Regulation)
Date of entry into
A. Legal acts pertaining
to the operation of the internal bodies established by the SSM Regulation
25, paragraph 2, and
26, paragraph 12
Decision 2014/179/EU (ECB/2014/1)
24 January 2014
Article 26, paragraphs 1, 2 and 5
Decision 2014/427/EU (ECB/2014/4)
6 February 2014
Article 26, paragraph 12
Rules of Procedure
1 April 2014
Administrative Board of Review
Decision 2014/360/EU (ECB/2014/16)
15 June 2014
Article 25, paragraph 5
Regulation (EU) No 673/2014
20 June 2014
B. Legal acts
pertaining to other aspects of the SSM
Article 4, paragraph 3, and
Article 33, paragraphs 3 and 4
Decision 2014/123/EU (ECB/2014/3)
6 February 2014
27 February 2014
Regulation (EU) No 469 2014
15 May 2014
Article 6, paragraph 2
Provision of supervisory data to
19 July 2014
Article 25, paragraphs 1-3
Separation of monetary and
18 October 2014
Article 30, paragraph 2
Regulation (EU) No 1163/2014
1 November 2014
 Under publication in ERA Forum, Journal of the Academy of European Law, 2015/1, Springer
 OJ L 55, 28.2.2011, pp. 13-20.
 These Articles are analysed in Craig (2010), pp. 57-66 and 252-255.
 OJ L 331, 15.12.2010, pp. 12-47.
 OJ L 331, 15.12.2010, pp. 48-83.
 OJ L 331, 15.12.2010, pp. 84-119.
 See on this Gortsos (2011), pp. 15-16.
 As regards the reasons that led to the
adoption of this approach (although there were proposals for the unification of
Authorities), see Louis (2010), p.
154 (point 7.10).
 OJ L 331, 15.12.2010, pp. 1-11.
 OJ L 331, 15.12.2010, pp. 162-164.
 On the ESFS, see Louis (2010), Gortsos (2011), with particular emphasis on the role of the
European Banking Authority, Ferran
(2012), Moloney (2012), Wymeersch (2012), and Papathanassiou and Zagouras (2012) (on the ESRB).
 On the causes of this crisis see,
by means of mere indication (out of a vast existing literature), Borio (2008), pp. 1-13, Goodhart (2009), pp. 2-29, Swoboda (2008), Norberg (2009), Rajan (2010), Posner (2010),
pp. 13-245, Lastra and Wood (2010),
pp. 537-545, Tirole (2010), pp.
11-47, and Gortsos (2012), pp.
127-129. For a comparison of the recent crisis with the international financial
crisis of 1931 (both in terms of causes and in terms of regulatory reaction),
see Moessner and Allen (2010).
 The so-called ‘Basel III regulatory
framework’ consists of two Reports of the Basel Committee on Banking
III: A global regulatory framework for more resilient banks and banking
(available at: http://www.bis.org/publ/bcbs189.htm), and
III: International framework for liquidity risk measurement, standards and
monitoring” (available at: http://www.bis.org/publ/bcbs188.htm).
For a detailed overview of the rules included in this framework, see indicatively Gortsos (2012),
These Reports have already been revised in June 2011 and January 2013,
respectively (available at: http://www.bis.org/bcbs/basel3.htm, with further
links), and the revision process is ongoing.
 On the FSB and these other
international fora, see indicatively Gortsos
(2012), pp. 143-159 and 160-195, respectively.
 See indicatively Directive
2014/17/EU of the European
Parliament and of the Council of 4February 2014 “on credit agreements for consumers relating
to residential immovable property (...)” (OJ L 60, 28.2.2014, pp.
 Directive 2014/49/EU of the European Parliament and of the Council
of 16 April 2014 “on deposit guarantee schemes (recast)” (OJ L 173, 12.6.2014,
pp. 149-178). This Directive is analysed in Gortsos (2014a).
 The FSB defines the shadow
banking system as “the system of credit
intermediation that involves entities and activities outside the regular
banking system” (FSB (2011): “Shadow Banking: Strengthening
Oversight and Regulation, Recommendations”, 27 October, Section 1, (available
at: http://www.financialstabilityboard.org/2011/10/r_111027a)). In
banking entities and activities raise funding with deposit-like
characteristics, perform maturity or liquidity transformation, allow credit
risk transfer, or use direct or indirect leverage.
According to these FSB
Recommendations, the regulatory measures to be examined by authorities refer to
five (5) main aspects:
the indirect regulation of banks’
interaction with and shadow banking entities,
the regulatory reform of money market funds (MMFs),
the regulation of other shadow banking entities, such as hedge funds,
the regulation of securitisation, and
the regulation of securities financing transactions (SFTs), such as
securities lending and repurchase agreements (repos) (ibid., Section 3.2).
 COM/2013/0614 final.
 COM/2013/0615 final - 2013/0306
 According to Article 15, paragraph
3 of Council Directive 93/22/ΕEC “on
investment services in the securities field” (OJ L 141, 11.6.93, pp. 27-46),
Member States were prohibited, since 1996, to impose on EU credit institutions
limitations with regard to the provision of investment services. This rule still
 On this model, see Saunders and Walter (1994), pp. 3-9
 In extremis, under US federal financial law,
banks were, since 1933, not allowed either to provide investment services or to
have subsidiaries that offer investment services pursuant to the provisions of
the “Glass-Steagall Act”. This law was partly repealed in 1999 with the “Financial Services Modernisation Act” (widely
known as ΄Gramm-Leach-Bliley Act΄, Public Law 106-102,
113 Stat. 1338).
 Public Law 111-203, 124 Stat. 1376-2223.
 The Report is available at: http://bankingcommission.independent.gov.uk.
 On all these structural banking reforms, see Binder (2015b), pp. 16-22 and 27-32.
 For the mandate and list of
members, see http://ec.europa.eu/internal_market/bank/docs/high-level_expert_group/mandate_en.
 High-Level Expet Group on Reforming
the Structure of the EU Banking Sector, Final Report (2012), available at: http://ec.europa.eu/internal_market/bank/docs/high-level_expert_group/
 COM/2014/040 final - 2014/0017 (COD). On this
aspect, see also Binder (2015b), pp.
 For an evaluation of this crisis, see
indicatively Eichengreen, Feldmann,
Liebman, von Hagen and Wyplosz (2011), pp. 47-64.
 It is evident that several institutional
developments were related to the enhancement of the EU Economic Union. By way
of mere indication, see on this the Van Rompuy Report (2012), and Stephanou (2013).
 The SSM is based on Council Regulation (EU) No 1024/2013 of
15 October 2013 “conferring specific tasks on the European Central Bank
concerning policies relating to the prudential supervision of credit
institutions” (OJ L 287, 29.10.2013, pp. 63-89).
The institutional framework pertaining to the SSM is further specified
in several legal acts of the ECB, containing provisions on the detailed
operational arrangements for the implementation of the tasks conferred upon it
by Regulation 1024/2013 (for an overview of these acts, see below Table 2). Among them, the most
important is Regulation (EU) No 468/2014
of the European Central Bank of 16 April 2014 “establishing the framework for
cooperation within the SSM between the European Central Bank and national
competent authorities and with national designated authorities (‘SSM Framework
Regulation’)” (ECB/2014/17) (OJ L
141, 14.5.2014, pp. 1-50).
In addition, an Interinstitutional
Agreement between the European Parliament and the ECB was also signed in
October 2013 “on the practical
modalities of the exercise of democratic accountability and oversight over the
exercise of the tasks conferred on the ECB within the framework of the Single
Supervisory Mechanism” (OJ L 320, 30.11.2013, pp. 1-6).
 Regulation (EU) No 806/2014 of the European Parliament and of the
Council of 15 July 2014 “establishing uniform rules and a uniform procedure for
the resolution of credit institutions and certain investment firms in the
framework of a Single ResolutionMechanism and a Single Resolution Fund
and amending Regulation (EU) No 1093/2010” (OJ L 225, 30.7.2014,
pp. 1–90). See on this Louis (2014).
 Directive 2013/36/EU of the European Parliament and of the Council
of 26 June 2013 “on access to the activity of credit institutions and the
prudential supervision of credit institutions and investment firms (...)” (OJ L
176, 27.6.2013, pp. 338-436)
 Regulation (EU) No 575/2013 of the European Parliament and of the
Council of 26 June 2013 “on prudential requirements for credit institutions and
investment firms and amending Regulation (EU) No 648/2012” (OJ L 176,
27.6.2013, pp. 1-337).
2014/59/EU of the European Parliament and of the Council of 15 May 2014
“establishing a framework for the recovery and resolution of credit
institutions and investment firms (...)” (OJ L 173, 12.6.2014, pp. 190-348). On
this Directive, see indicatively Binder
(2015a) and (2015c).
 For a general overview and a first
assessment of the legal sources of the EBU, see Louis (2012), Binder (2013), Breuss (2013), Ferran and Babis (2013),
Ferrarini and Chiarella (2013),
Lastra (2013), Wymeersch (2014),
and Gortsos (2014b), and Brescia
 The EFSF was established in June
2010 by a Framework Agreement between the euro area Member States (seventeen
(17) at that time) and the EFSF as a temporary
crisis resolution mechanism. It has provided financial assistance to Ireland, Portugal and Greece financed
through the issuance of bonds and other debt instruments on capital markets. On
this facility see: http://www.efsf.europa.eu/about/index.htm.
 This Treaty is available at: http://www.esm.europa.eu/about/legal-documents/index.htm.
 For more details on both these
facilities, see indicatively the various
contributions in Wyplosz, Collignon,
Gros and Belke (2011, editors).
 On the G20 see indicatively Gortsos (2012), pp. 134-135.
 On these capital adequacy frameworks,
see indicatively Gortsos (2012), pp.
 See for example Borio (2003).
 This was one of the main causes, in
the author’s view, of the recent (2007-2009) international financial crisis, at
least in some cases. This argument is further analysed in Norberg (2009), pp. 1-21, Posner
(2010), pp. 305-332, and Rajan
(2010), pp. 101-119.
 For an analysis on the correlation
between fragmentation and national resolution, see Schoenmaker (2013).
 SSM Regulation, Articles 4 and 5.
 See on this Smits (1997), pp. 223-288, European
Central Bank (2011), Lastra and
Louis (2013), pp. 79-80, and European
Parliament (2014) with regard to the ECB’s monetary policy throughout the two crises.
 De Larosière Report (2009), Chapter III, paragraphs 144-218.
paragraphs 171 and 172, first sentence.
 International Monetary Fund (2013), p. 17.
 See on this Deutsche Bundesbank (2013), p. 22.
 The concept was first introduced on
the Political Guidelines for the next European Commission issued by the, then
candidate, President of the European Commission Jean-Claude Juncker on 15 July
2014 (see Juncker (2014a)). On the
mission letter sent on 1 November to the newly appointed Commissioner for
Financial Stability, Financial Services and Capital Markets Union Lord Jonathan Hill, Juncker incorporated the project of creating a European Capital
Markets Union, alongside the Banking Union, as yet another step towards ending
the financial fragmentation in lending markets (see Juncker (2014b)).
 With regard to the supervisory initiatives
to address the international financial crisis, see Smits
(2010). See also European Parliament
(2014) with regard to the ECB΄s monetary policy throughout the two crises.
 CRR, Article 114, paragraph 4.
 On the key terms of the PSI
following the 26 October 2011 Euro Summit, see Hellenic Republic, Ministry of Finance (2012): PSI Launch, Press Release, 21 February. For the final settlement of
the PSI, see Hellenic Republic, Ministry
of Finance (2012): Press Release,
25 April. See also Gortsos (2013),
pp. 166-169, and more analytically Zettelmeyer,
Trebesch and Gulati (2013).
 On this institution, whose capital has been set at €50 billion from the
financial support mechanism for the Greek economy by euro area Member States,
the ECB and the IMF, see Gortsos (2013),
 SSM Regulation, Articles 10-13. Several provisions of these
Articles are further specified by Articles
138-139 and 141-146 of the ECB Framework Regulation.
 SSM Regulation, Articles 14-15, containing provisions further
specified by Articles 73-88 of the ECB
 SSM Regulation, Article 16.
Articles 18, containing provisions further specified by Articles 120-137 of the ECB Framework Regulation.
 SSM Regulation, Articles 19-21. This aspect is also governed by the
majority of the provisions of the Intergovernmental
Agreement (8457/14) of 14 May 2014. See on this Louis (2015).
 TFEU, Article 127, paragraph 1, first sentence.
 This aspect is also governed by the
ECB Decision 2014/723/EU of 17
September 2014 “on the implementation of separation between the monetary and
supervision functions of the European Central Bank” (ECB/2014/39) (OJ L 300, 18.10.2014, pp. 57-62).
 Credit institutions and other
supervised entities and groups incorporated in a non-participating Member State
may become subject to the supervisory authority of the ECB under the provisions
of the SSM Regulation once a ‘close
cooperation’, as provided for in Article 7, has been established. Such a cooperation is established
by an ECB Decision, provided that the requirements laid down in Article 7,
paragraph 2 are met. Such non-euro area participating Member States are
considered to considered also to be participating Member States for the
purposes of the SRM Regulation (Article, 4, paragraph 1).