Economy that works for the people

Question 1

Single supervisory mechanism

Answer 1

The SSM gives the European Central Bank certain supervisory powers over the EU financial system.

The single supervisory mechanism (SSM) is the first component, or ‘pillar’, of the banking union. Under the SSM, the European Central Bank (ECB) is the central prudential supervisor of financial institutions

in the euro area
in non-euro EU countries that choose to join the SSM

The ECB directly supervises the largest banks, while national supervisors continue to monitor the remaining banks.

The ECB and the national supervisors work closely together to

check that banks comply with EU banking rules
tackle problems early on

Question 2

Single resolution mechanism

Answer 2

The single resolution mechanism (SRM) is a central institution for bank resolution in the EU, and one of the main components of the banking union.

Resolution is the orderly restructuring of a bank by a resolution authority when the bank is failing or likely to fail. This procedure ensures that a bank failure does not harm the broader economy or cause financial instability.

The single resolution mechanism (SRM) applies to banks covered by the single supervisory mechanism. It is the second component, or ‘pillar’, of the banking union.

If a bank fails despite stronger supervision, the SRM allows bank resolution to be managed effectively through

a single resolution board
a single resolution fund that is financed by the banking sector

The purpose of the SRM is to ensure an orderly resolution of failing banks with minimal costs for taxpayers and to the real economy.