Single Supervisory Mechanism explained in 3 minutes

The recent financial and sovereign debt crisis showed how quickly problems caused by the close links between the banking sector and public finances can spread within Monetary Union. To prevent such problems, a Banking Union was established, one of its components being the Single Supervisory Mechanism (SSM). In this new EU supervisory system, the ECB and the national supervisory authorities work in close cooperation.

The main aims of the SSM are:

  • to ensure the safety and soundness of the European banking system
  • to increase financial integration and stability
  • to ensure consistent supervision of banks.

The SSM is one of the two pillars of the EU’s Banking Union, along with the Single Resolution Mechanism (SRM). The Finnish authority participating in the SSM is the Financial Supervisory Authority (FIN-FSA).

In the SSM, the Supervisory Board proposes draft decisions for adoption by the ECB Governing Council. The Governing Council adopts the draft decisions under the non-objection procedure. The Bank of Finland has a representative on the Supervisory Board.

To prevent conflicts of interest, the ECB carries out its supervisory tasks separately from its tasks relating to monetary policy. Within Banking Union, the Governing Council also participates in national decision-making on macroprudential policy. Responsibility is divided between the ECB and the national supervisory authorities.

As part of the European System of Central Banks, the Bank of Finland, based on the reasons stated above, also plays a role in single banking supervision.