The crisis management mechanism set in place by the ECB internally as single supervisor within the Banking Union in the Eurozone works, but there is room for improvement, the European Court of Auditors said on Tuesday 16 January.
The organisational structure of the ECB, which was set in place in record time, is “appropriate” and works, but we observed shortcomings at the level of communication between the ECB and the Single Resolution Board (SRB), reported Kevin Cardiff, a member of the Court of Auditors.
In particular, the European institution observed that the level of information fed by the ECB to the SRB does not automatically increase when the financial situation of a bank worsens. It therefore recommends that the single banking supervisor improve the exchange of information with the European authority responsible for resolving banks in difficulties, in the framework of ongoing discussions between the two entities to revise their memorandum of understanding.
Cardiff also noted that the ECB could give its staff more direction on the early analysis of the difficulties of a banking group it directly supervises. For instance, a series of indicators could be created, with clearly defined thresholds making it possible to determine that the financial situation of a bank was getting worse. A pre-determined scale of actions to be taken upon reaching each threshold would also improve the ECB's internal crisis management mechanism.
The audit did not look at specific cases, such as the resolution of the Spanish bank, or the restructuring of Italian regional banks in June 2017. On the basis of a sample of bank data, the European auditors gathered their information before either of those cases occurred.
In general, the ECB responded positively to the recommendations of the Court of Auditors and has started to take internal measures. There are, however, a few exceptions: it does not feel that it would be helpful to define a chain of actions to be taken in advance, due to the diverse range of situations that can lead to bank default. Nor does it agree to provide the EU auditor with more information in the exercise of its duties. This is a little disappointing, Cardiff responded.
At the end of 2016, the Court of Auditors published the results of an audit on the Single Supervision System (SSM) (see EUROPE 11671) and, at the end of 2017, on the Single Resolution Mechanism (SRM) (see EUROPE 11929). It will publish a new audit on the work of the European Banking Authority in 2018. (Original version in French by Mathieu Bion)