Sabine Lautenschläger: Confirmation hearing for the Vice-Chair of the
SSM Supervisory Board
Introductory statement by Ms Sabine Lautenschläger, Member of the Executive Board of the
European Central Bank, at the confirmation hearing for the Vice-Chair of the SSM
Supervisory Board, Strasbourg, 3 February 2014.
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Madam Chair,
honourable members of the Committee on Economic and Monetary Affairs,
It is a pleasure for me to be back here only three weeks after you had supported my
candidacy as member of the ECB Executive Board.
The fact that I am back here after such a short period of time reflects the central role that the
European Parliament plays in holding the ECB accountable for its supervisory tasks. It also
demonstrates that the Banking Union project is rapidly moving forward.
The Governing Council has proposed that I become Vice-Chair of the Supervisory Board of
the single supervisory mechanism (SSM). I am honoured by this proposal and glad to be
here today to demonstrate that I am ready to take up this challenge.
As you already know, I have been a banking supervisor for almost two decades, at the
Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) and as Vice-President of the
Deutsche Bundesbank. I have also been closely involved in international cooperation on
financial sector supervision and regulation in various bodies. These responsibilities have
provided me with first-hand experience in the very field in which Europe is currently
undergoing its most significant institutional overhaul since the introduction of the single
currency.
During my last visit here, I said that good supervision cannot be achieved solely at the
national level. But that does not mean that simply raising supervision to the European level
will automatically make everything run smoothly. In order to make common supervision a
success, we need to do things right from the very start.
That is what I want to help achieve as Vice-Chair of the SSM's Supervisory Board.
Doing things right from the start has been the guiding motif of the comprehensive
assessment, and it will also be the benchmark for our new supervisory model.
I will go into both of these aspects in my remarks today.
Comprehensive assessment
Let me start with the structure of the comprehensive assessment exercise. Following an
initial risk assessment, the comprehensive assessment will comprise an asset quality review
(AQR) and a stress test.
The asset quality review covers point-in-time risks. That means it takes into account the
current state of a bank and does not consider any future developments. A rigorous selection
of portfolios that should be reviewed is currently under way. The national competent
authorities (NCAs) have submitted proposals for these portfolios and the ECB is currently
studying these proposals before a final selection is made.
The stress test will address forward-looking risks. For this component of the comprehensive
assessment, the ECB is using the methodology defined by the European Banking Authority
(EBA). We published a first set of details today.
The objective of this stock-taking exercise is to ensure that banks' balance sheets are sound
before the ECB takes over their direct supervision. The comprehensive assessment is
intended to boost transparency, and thus foster confidence.
But this will only work if it is credible and of high quality. In my opinion, two things are crucial
for ensuring this:
an impartial and objective methodology that fosters comparability; and
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• transparency of the process, as well as of the results.
For the asset quality review, an impartial and objective methodology means, for example,
that we need to apply, and will apply current accounting rules as consistently as possible.
The vast majority of the banks undergoing the assessment report their accounts in line with
the International Financial Reporting Standards (IFRSs). For the others, we are devising
methods that allow national accounting standards to be used and still facilitate a high degree
of comparability. But this is only one aspect of achieving comparability.
The stress test will cover credit, market and funding risks. It can only deliver a credible
indication of the resilience of European banks to the market if it is based on tough stress
scenarios. This means that the scenarios will also have to include stressed sovereign bond
markets.
In addition to impartiality, transparency with respect to both the process and the results is key
for the assessment to live up to expectations.
In the first instance, transparency means informing the general public about the underlying
methodologies and the thrust of the exercise. That is why we have issued a press release
today, in which we provide information on the progress of the asset quality review and
confirm that we will use the stress test parameters announced by EBA last Friday. The ECB
will not publish intermediate results, but only the final outcomes, because we feel that only
those will be robust.
The supervisory model for the SSM
The second issue I want to highlight in my introductory remarks today is the implementation
of the SSM's supervisory model.
One of the advantages of the SSM is that it will draw on a broader and better basis of
information on euro area banks. This implies that we will be able to uncover trends in
individual business lines and risk management much sooner in the future. That will make it
possible to reveal undesirable developments more quickly.
I also expect the establishment of the SSM to be a major step forward with respect to a
consistent application of supervisory rules. Furthermore, I hope that European supervision,
involving teams of supervisors from various nations, will provide a new paradigm that
incorporates the best elements of each nation's approach to supervision. This new approach
will leave no room for a "home-biased" supervisory regime.
The new responsibilities of the SSM must be subject to democratic accountability. Based on
the SSM Regulation, the Interinstitutional Agreement provides for a strong framework for
accountability vis-à-vis the European Parliament, and I believe it to be of utmost importance
to ensure a trustful relationship between our two institutions. Today, we provided you with the
first quarterly report on the SSM, and Danièle Nouy will discuss it here in Strasbourg
tomorrow.
Honourable members,
I have only mentioned two of the aspects that we are currently dealing with in preparation of
our new supervisory tasks. Much could be added with respect to data reporting, staffing, the
IT infrastructure, the legal framework, supervisory fees and many other issues. However,
allow me instead to closing with a remark on a different but related topic - banking
resolution.
Adding a true single resolution mechanism (SRM) to a single supervisory mechanism is, in
my opinion, indispensable. The Banking Union must stand tall and strong on both these
pillars to be resilient. In order to achieve a balance between liability and control, a
crossborder supervisory structure needs to be complemented by a common regime for
restructuring and resolution. I hope that the legislative process will be completed in good time
to allow the SRM to become operational by the end of this year. On substance, I believe we
need an efficient decision-making process that ensures that effective resolution action can be
taken. I also believe that only a truly single resolution fund (SRF) with a fiscally neutral
backstop, together with risk sensitive rules for capital requirements, as well as a tough
banking supervisor, can successfully break the sovereign-bank nexus that has affected the
banking sector negatively during the crisis. In order not to create moral hazard between the
banks, it will be crucial to have a risk-adjusted levy system for contributions by the resolution
fund. As the most of you do, I would have preferred a pure European solution, instead of an
intergovernmental agreement, but I have to accept the constraints in national laws.
Nevertheless, I am hoping for a compromise on the SRM and SRF, because starting the
SSM in November without clarity about the resolution system would clearly be
disadvantageous.
Thank you for your attention. I am now at your disposal for questions.