Special Report European banking 
supervision taking 
shape — EBA and its 
changing contextEN 2014  NO 05
EUROPEAN
COURT
OF AUDITORS
EUROPEAN COURT OF AUDITORS  
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1615 Luxembourg  
LUXEMBOURG
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Luxembourg: Publications Office of the European Union, 2014
ISBN 978-92-872-0488-2
doi:10.2865/9459
© European Union, 2014
Reproduction is authorised provided the source is acknowledged.
Printed in Luxembourg
EN 2014  NO 05
Special Report European banking 
supervision taking 
shape — EBA and its 
changing context
(pursuant to Article 287(4), second subparagraph, TFEU)
02
 Contents
Paragraph
 Abbreviations
 Glossary
I–VIII  Executive summary
1–16  Introduction
4 –11  Commission initiatives since 2008
6 –11  Establishment of EBA as part of the set‑up for banking supervision developed in 2011
12–16  Recent developments in the establishment of a banking union
14–15  EBA and the establishment of the Single Supervisory Mechanism (SSM)
16 Establishment of the Single Resolution Mechanism (SRM)
17–21  Audit scope and approach
22–80  Observations
23–38  Regulatory reform: The Commission responded with a broad regulatory agenda for the banking 
sector and EBA contributed through its development of the technical standards and guidelines
24–27  The Commission has been timely in drafting legislation, but …
28–35  … there were tight deadlines for EBA, brief public consultation and no overall impact assessment 
developed by the Commission
36–38  Risk of sub‑optimal decision‑making by the EBA Board of Supervisors
39–55  Supervisory reform: EBA has contributed to cross ‑border supervision but challenges remain
44–52  … Supervisory convergence through the colleges of supervisors has improved but remains limited
53–55  … EBA’s role in mediation was limited due to legal constraints
03 Contents
56–64  Supervisory reform: role of EBA in stress tests
56–61  Issues with the reliability of the 2011 bank stress tests, however …
62–64  … Recapitalisation exercise in 2012 contributed to restoring confidence
65–74  Supervisory reform: consumer protection and key management systems have yet to be developed
65–72  … Minimal resources and few voting members with a full mandate in consumer protection
73–74  … EBA still has to implement key internal systems to ensure efficient and effective performance
75–80  Supervisory reform: EBA’s changing role
81–90  Conclusions and recommendations
83 Regulatory reform
84–90 Supervisory developments: implications for EBA’s supervisory role
 Annex I — Overview of the audit approach
 Annex II — EBA’s competences and activities
 Annex III — Expert Panel
 Annex IV  — Legislative initiatives selected for review
 Annex V — Resolution mechanisms and deposit insurance in the United States and Canada
 Annex VI  — A framework for the recovery and resolution of banks
 Annex VII — Bibliography
 Reply of the Commission
 Reply of the European Banking Authority
04
 Abbreviations
CEBS : Committee of European Banking Supervision
CRD IV : Capital requirements directive IV
CRR : Capital requirements regulation
DG Internal Market and Services : Directorate‑General for the Internal Market and Services 
EBA : European Banking Authority
ECB : European Central Bank
EIOPA : European Insurance and Occupational Pensions Authority
ESFS : European System of Financial Supervision 
ESMA : European Securities and Markets Authority
ESRB : European Systemic Risk Board
EU: European Union
FICOD : Financial conglomerates directive
FED : Federal Reserve System (USA)
FSB : Financial Stability Board
GDP : Gross domestic product
G20 : The Group of Twenty Finance Ministers and Central Bank Governors
MCD : Mortgage credit directive
NSA : National supervisory authority
SRB : Single Resolution Board
SRM : Single Resolution Mechanism
SSM : Single Supervisory Mechanism
TARP : The Troubled Asset Relief Programme
05
 Glossary
Banking regulation : a form of government regulation which imposes on banks certain requirements, restrictions 
and guidelines. The regulatory structure creates transparency between banking institutions and their clients. The 
objectives of banking regulation inter alia are prudential (to reduce the level of risk to which bank creditors are 
exposed), systemic risk reduction (to reduce the risk of disruption resulting from adverse trading conditions for 
banks causing multiple or major bank failures), and rules about the fair treatment of customers.
Banking supervision : the act of monitoring the financial performance and operations of banks in order to ensure 
that they are operating safely and soundly and following rules and regulations. Bank supervision is conducted by 
governmental regulators and occurs in order to prevent bank failures.
Basel Committee on Banking Supervision : a committee of banking supervisory authorities established by the 
central bank governors of the Group of Ten countries in 1974 with the objective of enhancing understanding of key 
supervisory issues and improving the quality of banking supervision worldwide. The committee frames guidelines 
and standards in different areas, such as the international standards on capital adequacy (Basel, Basel II and Basel III).
Colleges of supervisors : are coordination structures that bring together the regulatory authorities from different 
countries involved in the supervision of a cross‑border banking group. They are a mechanism for the exchange 
of information between home and host supervisors, for the planning and performance of supervisory tasks in 
a coordinated manner or jointly, and for the preparation for and the handling of emergency situations.
Financial backstop : the mechanism or fund that ensures that adequate funds are available for resolution financing 
or other support to financial institutions, to be used only as a last resort.
Financial market : a market in which people and entities can trade financial assets and liabilities. Money markets 
and capital markets are parts of financial markets.
Home supervisor : the supervisory authority responsible for prudential supervision in the EU Member State in 
which the financial institution has obtained its licence to perform its EU banking activities (home country).
Host supervisor : the supervisory authority responsible for prudential supervision in the EU Member State in which 
a financial institution has a subsidiary, other than the home Member State which has licensed it to perform its EU 
banking activities.
Impact assessment : a set of logical steps which helps the European Commission to assess the potential economic, 
social and environmental consequences of a new initiative. It is a process that prepares evidence for political 
decision‑makers on the advantages and disadvantages of policy options by assessing their potential impact.
06 Glossary
Macro‑prudential supervision : oversight that focuses on the stability of a financial system as a whole, rather than 
on its components. The need for macro‑prudential regulation of the system arises because the actions of individual 
companies acting prudently within guidelines may collectively result in the system’s instability, for example, if all 
lenders restrict lending or all companies sell assets at the same time.
Micro‑prudential supervision : focuses on the stability of the component parts of a financial system. The focus of 
micro‑prudential supervision is the safety and soundness of individual financial institutions.
Prudential regulation : an appropriate legal framework for financial operations to prevent or minimise financial 
sector problems.
Public consultation : a regulatory process by which the public’s views on matters affecting them are sought and 
received. Its main objective is to improve efficiency, transparency and public involvement in laws and policies. 
Consultations are an essential prerequisite for quality impact assessment. 
Recapitalisation : when a legal entity changes its capital structure (the proportion of equity to debt) with the aim 
of improving its debt/equity ratio.
Regulatory capital : (also known as capital requirement or capital adequacy) — the amount of capital a bank 
or other financial institution is required to hold by its financial regulator. This is usually expressed as a capital 
adequacy ratio of equity that must be held as a percentage of risk‑weighted assets.
Resolution : any action by an authority, with or without private sector involvement, intended to address serious 
problems in a financial institution which is no longer viable and where there is no reasonable prospect of it 
becoming so, including by its restructuring.
Risk‑weighted assets : a bank’s assets and off‑balance sheet exposures, weighted according to risk and used in 
determining the capital requirement or capital adequacy ratio (CAR) for a financial institution.
Single rulebook : the single rulebook aims to provide a single set of harmonised prudential rules which are 
binding in their entirety and directly applicable throughout the EU. It will ensure uniform application of Basel III 
in all Member States, closing regulatory loopholes and thus contributing to a more effective functioning of the 
internal market. The single rulebook consists of binding technical standards (BTS) which supplement the legislative 
instruments to which they relate.
07 Glossary
Single (supervisory) handbook : a common framework for the identification, measurement and analysis of risks 
at banks, together with common guidance for supervisory intervention and corrective action. The handbook will 
represent a non‑binding collection of supervisory best practice applied in the EU.
Sovereign debt : also known as government debt, public debt or national debt. This is the debt owed by central 
government. The sovereign debt crisis relates to the difficulty or impossibility for some countries to repay or 
re‑finance their government debt without the assistance of third parties.
Stress testing : a simulation designed to assess the ability of a given financial institution to deal with an economic 
crisis. Stress tests are carried out with the objective of seeing how robust a financial institution is under different 
conditions.
08
 Executive  
summary
I
In the aftermath of the financial crisis, the Commis ‑
sion took steps to stabilise the banking sector by 
seeking to strengthen the regulatory framework and 
the supervision of banks, in particular those operat ‑
ing across borders. As part of extensive proposals for 
regulatory changes, a new European Banking Author ‑
ity (EBA) was set up in 2011.
II
The objective of the Court’s audit was to assess 
whether the Commission and EBA had satisfactorily 
carried out their responsibilities in setting up the 
new arrangements for the regulation and supervision 
system of the banking sector and to examine how suc ‑
cessfully those new arrangements were functioning.
III
The Court assessed that the Commission’s reform of 
banking sector legislation and the creation of the EBA 
and their activities in setting up the new regulation 
and supervision system of the banking sector estab ‑
lished in 2011 were important first steps in response 
to the financial crisis. However, shortcomings were 
identified in the functioning of the new arrangements 
in respect of cross‑border banking supervision, the 
assessment of the resilience of EU banks and promo ‑
tion of consumer protection in the market for financial 
products or services in EU.IV
The Court found that the Commission and EBA reacted 
to the financial crisis with a broad regulatory agenda. 
The Commission was timely in drafting legislation but 
public consultation periods at both EBA and DG Inter ‑
nal Market and Services were short. In addition, EBA 
faced short deadlines and there was no overall impact 
assessment for the legislative package.
V
As part of supervisory reform, EBA has contributed to 
improving the cross‑border supervision of banks as 
a facilitator and coordinator of the work of national 
supervisory authorities (NSAs). However, its role in 
banking supervision tasks has been limited in many 
areas. The day‑to‑day supervision of banks remains 
in the remit of the NSAs, and EBA does not carry out 
direct supervision of financial institutions. Supervisory 
convergence through the colleges of supervisors is 
limited, and colleges spent too much time discussing 
procedures rather than focusing on risks.
VI
EBA lacks the authority to make or enforce decisions 
on supervisory convergence and to resolve disputes 
between NSAs. Although EBA has made significant 
efforts to resolve disputes between NSAs, it has 
limited legal powers in mediation. Likewise, the Court 
found that EBA had a limited legal mandate and 
staff to conduct the 2011 stress tests. Overall, EBA’s 
resources during its start‑up phase were insufficient to 
allow it to fulfil its mandate.
Executive summary 09
VII
From autumn 2014 the European Central Bank (ECB) 
will have the authority to supervise the banking sector 
in all the euro area Member States and other Member 
States that wish to participate. This Single Supervisory 
Mechanism (SSM) will involve cooperation between 
the ECB and the NSAs, where the ECB will be responsi ‑
ble for the overall functioning of the SSM.
VIII
The Court considers that successful EU‑wide bank ‑
ing supervision requires a clear division of roles and 
accountability between EBA, the ECB and the NSAs, 
both those in and those outside the SSM. To avoid the 
risk of overlapping tasks and unclear responsibilities in 
some areas between the ECB, NSAs and EBA the Court 
recommends that roles and responsibilities be further 
clarified in legislation or memoranda of understand ‑
ing. The Court also recommends that procedures be 
set up to ensure close and frequent cooperation and 
information exchange between the different bodies 
and that particular attention should be paid to the 
period of transition before the SSM is fully established.
10
 Introduction
01 
The global crisis that affected the fi ‑
nancial sector from 2007 was the result 
of a combination of excessive risk‑tak ‑
ing and adverse developments in fi ‑
nancial markets. It caused considerable 
losses on investments, pushing bank 
regulatory capital below the required 
levels. Banks were no longer able to 
seek finance on the money and capital 
markets. Because they were so closely 
interlinked, moreover, the bankruptcy 
of one big financial institution could 
have led to that of many others, put ‑
ting the entire financial system at risk.
02 
In order to avoid a collapse of the 
banking system, EU Member States 
used public funds to recapitalise their 
banks, while central banks provided 
the banking system with liquidity. The 
EU institutions and the Member States 
took emergency action in a bid to 
restore confidence in financial insti ‑
tutions, followed by regulatory and 
supervisory reforms (see paragraphs 4 
to 16).03 
The Commission approved aid 
amounting to 5 trillion euro (40,3 % 
of EU GDP1) to the financial sector 
between 2008 and 2012, mainly by way 
of guarantees and recapitalisation. In 
some Member States the scale of sup ‑
port contributed to a sovereign debt 
crisis, which threatened the financial 
stability of the euro area. To preserve 
euro area stability, financial assistance 
was provided through different finan ‑
cial support mechanisms established 
as a response to the financial crisis. See 
Figure 1  for a detailed timeline of the 
history of the financial crisis and the 
response by the EU and its Member 
States.
Commission initiatives 
since 2008
04 
In the context of the global crisis in the 
financial sector, the Commission has 
taken steps to stabilise the banking 
sector by seeking to strengthen:
 — the regulatory framework under 
which banks operate in the EU;
 — the supervision of banks, in 
particular those operating in 
a cross‑border capacity; and
 — the protection of European con ‑
sumers vis‑à‑vis financial products.1 COM(2012) 778 final of 
21 December 2012 and 
SWD(2012) 443 final of 
21 December, p. 29.
11 Introduction
05 
Since 2008, the Commission’s Direc ‑
torate‑General for the Internal Market 
and Services (DG Internal Market and 
Services) has introduced extensive 
proposals for regulatory changes (see 
Annex IV ), mainly stemming from 
international efforts to stabilise the 
global financial system by the G20 
and the Basel Committee on Banking 
Supervision. One of these proposals 
concerned the creation of the Euro ‑
pean Banking Authority (EBA).Establishment of EBA as part 
of the set‑up for banking 
supervision developed in 
2011
06 
EBA was established on 1 Janu ‑
ar y 20112. It replaced the Committee of 
European Banking Supervisors (CEBS)3 
and has a greater role in the regulation 
and supervisory oversight and the leg ‑
islative process (see Table 1 ). EBA’s role 
also includes consumer protection4.
CEBS and EBA mandates
CEBS EBA
Regulation Purely advisory function
Issues non‑binding guidelines and 
recommendations Drafts technical standards which become 
an EU regulation directly applicable in 
Member States when adopted by the 
Commission
Supervision Participates in a number of supervisory 
colleges on a voluntary basis Right to participate in all supervisory col ‑
leges and to put topics on the agenda
Mediation role in the event of disagree ‑
ments between NSAs 
Consumer 
protection Not applicablePromotes transparency, simplicity and 
fairness in the market for consumer 
financial products or services in EU 
Source:  ECA analysis.Table 12 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), 
amending Decision 
No 716/2009/EC and repealing 
Commission Decision 
2009/78/EC (OJ L 331, 
15.12.2010, p. 12).
3 Regulation (EU) No 1093/2010.
4 Article 9 of Regulation (EU) 
No 1093/2010.
12 Introduction18 Mar ch 20113 August 2011
6 April 2011 15 July 20112 June 201027 June 2012 12 S eptember 201210 July 2013 23 O ctober 2013 14 N ovember 2013
28 November 2010
The Euro area ﬁnance ministers agree 
on the future European Stability 
Mechanism (ESM) as a permanent 
rescue mechanism to replace the 
European Financial Stability Facility 
(EFSF) as of mid-2013.13 October 2011 
After ratiﬁcation by the euro area 
countries, the enhanced EFSF became 
operational. It had an eﬀective lending 
capacity of € 440 bn through 
guarantee commitments from those 
17 countries.
1 January 2011
The three new ESAs were set up.
13 December 2012
The Council agreed on the Single 
Supervisory Mechanism.
26 June 2013
The new CRD IV and CRR were 
adopted.2 March 2012
The Treaty on stability, coordination 
and governance in the Economic and 
Monetary Union was signed.
3 November 2013
Regulation on the Single Supervisory 
Mechanism came into force.20 December 2013
The Council agreed on the Single 
Resolution Mechanism.
The European Banking Authority 
(EBA) published details of the 
upcoming EU-wide banking stress tests, explaining the scenarios and methodology for a sample of European banks.
The European Commission published a proposal for a single supervisory mechanism (SSM) for all banks in the euro area.
The Commission launched a proposal for a Single Resolution Mechanism to complement the SSM setting up a Single Bank Resolution Fund under the control 
of a Single Resolution Board.ECB starts comprehensive 
assessment in advance of its supervisory role.Eurogroup statement on the exit of 
Spain and Ireland from their 
Economic Adjustment Programme.The European Banking Authority published the results of the 2011 round of banking stress tests.
Portugal requested the activation 
of the aid mechanism by the Eurogroup and ECOFIN (the EU provided loans amounting to 
€ 52 bn).
Both Spain and Cyprus requested 
ﬁnancial assistance.President Barroso made a Statement on the euro area 
sovereign bond markets and the concerns related to 
the developments in the sovereign bond markets of 
Italy and Spain.Figure 1Timeline of the financial crisis and EU responseBeginning of 2007 December 2007 15 S eptember 2008 October 2008 15 O ctober 2008
21 N ovember 201026 Januar y 200925 F ebruar y 2009 April 2009 23 June 2009 13 July 2009April 2010
23 S eptember 200923 July 2010 2 June 2010 26 Ma y 2010
19 N ovember 2008Tensions related to US sub-prime 
mortgages started to cause shortages of liquidity in money markets around the world.
The Bank of Canada, the Bank of 
England, the ECB, the Federal 
Reserve and the Swiss National 
Bank announced measures to address pressures in short-term funding markets.The Commission adopted legislative proposals establishing the ﬁrst 
EU-wide system of supervision - 
European System of Financial 
Supervisors (ESFS). The new 
European Supervising Authorities (ESAs) were created by the transformation of existing level 3 Committees for the banking, securities, and insurance and 
occupational pensions sectors. The fourth-largest investment bank 
in the US Lehman Brothers Holdings Inc. ﬁled for bankruptcy. The already distressed ﬁnancial market began a period of extreme volatility.
The European Commission adopted 
a proposal on a revision of the 
existing bank Capital Requirements Directive. The Commission adopted a proposal to amend the Capital Requirements Directive (CRD) further.Commission proposes Bank Resolution Funds ﬁnanced by a bank levy.
Commission proposals for improved 
EU supervision of Credit Rating Agencies (CRAs). 
The Committee of European 
Banking Supervisors published the results of the banking stress tests.The European Commission made a proposal to increase minimum protection for bank deposits to €100 000. In addition the EC proposed changes to the International Accounting Standards (IAS) in order to mitigate consequences of ﬁnancial turmoil.
The De Larosière Group, charged with making recommendations to the European Commission on strengthening ﬁnancial supervision in the EU, published its report. The G20 leaders met in London to 
discuss ﬁnancial markets and the global economy and agreed to establish a new Financial Stability Board with a strengthened mandate, as a successor to the Financial Stability Forum (FSF).
Memorandum of Understanding on ﬁnancial assistance to Hungary - balance of payments assistance of 
up to € 6,5 bnMemorandum of Understanding on 
balance of payments ﬁnancial 
assistance to Romania - € 5 bn.
Memorandum of Understanding on ﬁnancial assistance 
to Latvia part of a package of international ﬁnancial 
assistance to Latvia totalling up to € 7,5 bnThe Irish government requested 
support from within the EU and 
from IMF.The ﬁnancial support mechanism for Greece became fully 
operational and in May 2010 Greece oﬃcially requested 
ﬁnancial support from the euro area countries and the 
IMF. The euro area countries and the IMF agreed on
a € 110 bn loan package.
9 M ay 2010
Extraordinary ECOFIN meeting: 
Ministers decided on the details of 
a comprehensive package of measures, 
including the European Financial 
Stabilisation Mechanism (EFSM) and the 
European Financial Stability Facility (EFSF) 
with a total of up to € 500 bn based on 
strong conditionality and on terms and 
conditions. 
7 June 2010
The European Financial Stability Facility 
(EFSF) was established
16 October 2010
The legislation establishing the European 
Systemic Risk Board (ESRB) came into 
force.
13 Introduction18 Mar ch 20113 August 2011
6 April 2011 15 July 20112 June 201027 June 2012 12 S eptember 201210 July 2013 23 O ctober 2013 14 N ovember 2013
28 November 2010
The Euro area ﬁnance ministers agree 
on the future European Stability 
Mechanism (ESM) as a permanent 
rescue mechanism to replace the 
European Financial Stability Facility 
(EFSF) as of mid-2013.13 October 2011 
After ratiﬁcation by the euro area 
countries, the enhanced EFSF became 
operational. It had an eﬀective lending 
capacity of € 440 bn through 
guarantee commitments from those 
17 countries.
1 January 2011
The three new ESAs were set up.
13 December 2012
The Council agreed on the Single 
Supervisory Mechanism.
26 June 2013
The new CRD IV and CRR were 
adopted.2 March 2012
The Treaty on stability, coordination 
and governance in the Economic and 
Monetary Union was signed.
3 November 2013
Regulation on the Single Supervisory 
Mechanism came into force.20 December 2013
The Council agreed on the Single 
Resolution Mechanism.
The European Banking Authority 
(EBA) published details of the 
upcoming EU-wide banking stress tests, explaining the scenarios and methodology for a sample of European banks.
The European Commission published a proposal for a single supervisory mechanism (SSM) for all banks in the euro area.
The Commission launched a proposal for a Single Resolution Mechanism to complement the SSM setting up a Single Bank Resolution Fund under the control 
of a Single Resolution Board.ECB starts comprehensive 
assessment in advance of its supervisory role.Eurogroup statement on the exit of 
Spain and Ireland from their 
Economic Adjustment Programme.The European Banking Authority published the results of the 2011 round of banking stress tests.
Portugal requested the activation 
of the aid mechanism by the Eurogroup and ECOFIN (the EU provided loans amounting to 
€ 52 bn).
Both Spain and Cyprus requested 
ﬁnancial assistance.President Barroso made a Statement on the euro area 
sovereign bond markets and the concerns related to 
the developments in the sovereign bond markets of 
Italy and Spain.
14 Introduction
07 
EBA forms part of the European System 
of Financial Supervision (ESFS), which 
was established in 2011 with the aim 
of ensuring micro‑prudential supervi ‑
sion. The main objective of the ESFS 
is to contribute to the short, medium 
and long‑term stability of the financial 
system for the EU economy, its citizens 
and businesses. The ESFS comprises 
EBA, the European Securities and Markets Authority (ESMA) and the 
European Insurance and Occupational 
Pensions Authority (EIOPA) which, 
together with the National Supervisory 
Authorities (NSAs) provide for mi ‑
cro‑prudential supervision. Together 
with the European Systemic Risk Board 
(ESRB), responsible for macro‑pru ‑
dential supervision, they form the 
European supervisory architecture (see 
Figure 2 ).Figure 2The European supervisory architecture as established in 2011
Non v oting members: O ne
represen tative of na tional
sper visors f or each Member
States/EFC pr esiden tECB support
European Commission
Micro-prudential 
informationRisk warning 
RecommendationsEU /f_inancial sectorChairs of EBA, 
EIOPA & ESMANon voting members: 
One representative of national 
supervisors for each Member 
States/EFC presidentGovernors of NCBs  ECB 
President  & 
Vice-President 
European Banking
Authority
National Banking 
Supervisory AuthoritiesEuropean Insurance and 
Occupational Pension 
Authority
National Insurance and 
Pension Supervisory 
AuthoritiesEuropean Securities and 
Markets Authority
National Securities 
Supervisory AuthoritiesEuropean Systemic Risk Board 
Macro-prudential supervision
European System of Financial Supervisors 
Micro-prudential supervision
Source:  ECB.
15 Introduction
08 
EBA’s main tasks, for all EU Member 
States, are to:
 — develop the Single Rulebook and 
thus contribute to the establish ‑
ment of high‑quality common 
regulatory and supervisory stand ‑
ards and practices;
 — contribute to the consistent ap ‑
plication of legally binding Union 
acts;
 — stimulate and facilitate the delega ‑
tion of tasks and responsibilities 
among competent authorities;
 — monitor and assess market de ‑
velopments in the area of its 
competence;
 — foster depositor and investor 
protection;
 — contribute to the consistent and 
coherent functioning of colleges of 
supervisors; and
 — promote transparency, simplic ‑
ity and fairness in the market for 
consumer financial products or 
services across the internal market.09 
Although EBA has a greater role in 
terms of supervision in the EU when 
compared with the previous CEBS (see 
paragraph 6), the day‑to‑day supervi ‑
sion of banks remains the remit of the 
NSAs. EBA does not carry out direct 
supervision of financial institutions. 
The European banking supervision 
set‑up relies, among other things, on 
cooperation between the home and 
host supervisors, with information 
exchanged via the supervisory col ‑
leges in order to have a consolidated 
overview of a bank’s risk exposure.
10 
EBA is 60 % financed from NSAs and 
40 % from the EU budget. In 2012 it 
had an annual budget of 20,7 mil ‑
lion euro (12,7 million euro in 2011). 
EBA’s staffing resources are limited — 
it had 94 staff in 2012. EBA is largely 
dependent on staff from the NSAs 
(national experts or short‑term as ‑
sistance on specific tasks) as well as 
contract staff.
11 
Regulation of financial services falls 
under the co‑decision procedure of 
the Council and the European Parlia ‑
ment (Article 294 TFEU: the ordinary 
legislative procedure). New regulations 
and directives are therefore adopted 
by both the Council and the Parlia ‑
ment. The Commission endorses the 
draft technical standards elaborated 
by EBA by means of implementing acts 
or delegated acts as specified in the 
regulation or directive (see also para ‑
graphs 29 to 30).
16 Introduction
Recent developments in 
the establishment of 
a banking union
12 
Given the continuing financial crisis, 
in 2012 the Heads of State or Gov ‑
ernments of the euro area countries 
agreed that more needed to be done 
to improve the regulation and supervi ‑
sion of the banking sector5. It was de ‑
cided that ‘a specific and time‑bound 
roadmap for the achievement of 
a genuine economic and monetary 
union’ should be developed, includ ‑
ing concrete proposals on preserving 
the unity and integrity of the single 
market in financial services6. The bank ‑
ing union is one of the elements in the 
roadmap which was presented by the 
President of the European Council on 
26 June 2012.
13 
Banking union consists of the follow ‑
ing components (see Table 2 ):5 29 June 2012 Euro Area 
Summit.
6 ‘Towards a Genuine Economic 
and Monetary Union ’, Report 
by President of the European 
Council, Herman Van Rompuy, 
26 June 2012, p. 7 and ‘A 
Roadmap towards a Banking 
Union ’ COM(2012) 510 of 
12.9.2012.
17 Introduction
Status of the components of banking unionTable 2Component Status Description
A Single 
Supervisory 
Mechanism (see 
paragraphs 14 
to 15) On 15 October 2013 the Council adopted 
the regulations establishing the Single 
Supervisory Mechanism (SSM). Under the SSM the European Central Bank 
(ECB) will be responsible, together with 
national supervisory authorities, for the 
supervision of banks in the euro area 
and in other Member States that wish to 
participate. The ECB will assume its full 
supervisory tasks on 4 November 2014.
An integrated 
crisis 
management 
frameworkIn December 2013 the Council and 
the European Parliament reached an 
agreement on the framework for bank 
recovery and resolution.The framework aims to manage banks in 
difficulty and where necessary wind down 
failing banks in a predictable and efficient 
way with minimum recourse to public 
money. The Single Resolution Mechanism, 
once in place, will be the authority applying 
these rules. 
On 20 March 2014 an agreement 
was reached between the European 
Parliament and the Council on a Single 
Resolution Mechanism (SRM). The 
European Parliament’s first reading 
of the proposal for a regulation 
establishing a single resolution 
mechanism for failing banks took place 
on 15 April 2014. After the final adoption 
of the text, the Council of the European 
Union will subsequently adopt the 
regulation without further discussion.The Council and the Parliament agreed on 
a Resolution Board with broad powers in 
case of bank resolution. The Board or the 
ECB as supervisor of the banking sector can 
initiate the resolution of a failing bank. The 
agreement contains a Single Resolution 
Fund financed by bank levies and will 
initially consist of national compartments 
that will be gradually merged over 8 years. 
The Single Resolution Mechanism will 
cover all banks in the participating Member 
States. 
A common 
system for 
deposit 
guaranteesThe legislators agreed that every 
Member State should establish a partly 
pre‑funded scheme guaranteeing all 
deposits under 100 000 euro. Only national deposit guarantee schemes 
are in place. At the time of the audit the 
Commission had not yet made a proposal 
for a common European deposit guarantee 
scheme7.
A single rule 
bookSince its establishment, EBA has been 
working towards the creation of a single 
rulebook. Work was still ongoing in 
2013. In 2012 six guidelines, four discussion 
papers, 14 consultation papers and 23 draft 
technical standards were published for 
public consultation, e.g. to incorporate CRD 
IV (see paragraph 29).7 The current directive 
(Directive 2009/14/EC of the 
European Parliament and of 
the Council of 11 March 2009 
amending Directive 94/19/EC 
on deposit‑guarantee 
schemes as regards the 
coverage level and the payout 
delay (OJ L 68, 13.3.2009, p. 3)) 
ensures coverage of deposits 
of up to 100 000 euro in all EU 
Member States. In July 2010 
the Commission adopted 
a legislative proposal for 
a thorough revision of the 
directive which aims at 
harmonising and simplifying 
national deposit guarantee 
schemes, a faster pay‑out, and 
improved financing of the 
schemes. At the 27–
28 June 2013 European 
Council, EU leaders called for 
the adoption of this proposal 
before the end of the year.
18 Introduction
EBA and the establishment of 
the Single Supervisory  
Mechanism (SSM)
14 
In October 2013, the Council approved 
a regulation granting the European 
Central Bank authority to supervise 
the banking sector. It also approved 
amendments to the EBA regula ‑
tion8. The ECB regulation provides for 
cooperation between the ECB and 
the NSAs. However, the ECB will be 
responsible for the overall functioning 
of the SSM. The ECB will have direct 
oversight of most systemically impor ‑
tant euro area banks, while the other banks will remain under the oversight 
of the NSAs. NSAs will remain in charge 
of tasks not conferred on the ECB, for 
example consumer protection and 
branches of third‑country banks.
15 
Following the creation of the SSM, 
EBA’s regulatory role should remain 
essentially unchanged (see paragraph 
76). However, regarding supervision 
there are some areas where there is 
a need for clarity as to the allocation of 
responsibilities between EBA and the 
ECB (see paragraphs 77 to 80).8 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 ‘SSM 
Regulation’ (OJ L 287, 
29.10.2013, p. 63).  
Regulation (EU) No 1022/2013 
of 22 October 2013 of the 
European Parliament and of 
the Council amending 
Regulation (EU) No 1093/2010 
establishing a European 
Supervisory Authority 
(European Banking Authority) 
as regards the conferral of 
specific tasks on the European 
Central Bank pursuant to 
Council Regulation (EU) 
No 1024/2013 (OJ L 287, 
29.10.2013, p. 5).Figure 3European financial supervision following the introduction of the SSM
Source:  Based on a model by the Royal Institute for International Relations Egmont.SSM-countries
Non-SSM-countriesCredit institutions
Other ﬁnancial 
institutions 
National 
supervisionNational 
supervisionDirect ECB 
supervision 
National 
supervision, overall 
oversight of the ECBSigniﬁcant credit 
institutions
Inside 
the SSM
Outside the SSMOther credit 
institutions
19 Introduction
Establishment of the Single 
Resolution Mechanism (SRM)
16 
On 20 March 2014 an agreement 
was reached between the European 
Parliament and the Council on a Single 
Resolution Mechanism (SRM). The draft 
regulation agreed by the European 
Parliament and the Council provides 
for a Single Resolution Board with 
broad powers in cases of bank resolu ‑
tion. Upon notification by the Euro ‑
pean Central Bank that a bank is failing 
or likely to fail, or on its own initiative, 
the board would adopt a scheme plac ‑
ing the bank into resolution. It would 
determine the application of resolu ‑
tion tools and the use of the Single 
Resolution Fund. (See Annex VI  for 
information on the framework for the 
resolution of banks and for the Finan ‑
cial Stability Board’s ‘Key attributes of 
effective resolution mechanisms’).
20
 Audit scope and  
approach
17 
The objective of the Court’s audit was:
 — to assess whether the Commission 
and EBA had satisfactorily carried 
out their responsibilities in setting 
up the new arrangements for the 
regulation and supervision system 
of the banking sector established 
in 2011;
 — to examine how successfully those 
new arrangements were function ‑
ing in respect of cross‑border 
banking supervision, assessment 
of the resilience of EU banks and 
promotion of consumer protection 
in the market for financial prod ‑
ucts or services in the EU.
18 
The audit work covered the activities 
of DG Internal Market and Services in 
drafting financial sector legislation, for 
monitoring its implementation and for 
evaluating its impact, as well as EBA’s 
activities in relation to regulation, 
supervision and consumer protection. 
The audit field work to these bodies 
was carried out in 2012 and early 2013.19 
Information‑gathering visits were 
made to six Member States’9 national 
supervisory authorities, central banks 
and banking associations. The auditors 
visited ESMA, EIOPA, the ESRB and the 
European Central Bank. They also met 
with a number of banking supervisors 
and regulators in the United States 
and Canada (see Annex I, point 6(c) ). 
The initial observations were discussed 
with a panel of experts (see Annex III) . 
A wide range of academic literature on 
the future banking supervision regime 
was also reviewed (see Annex VII ).
20 
Audit work carried out enabled the 
Court to report on relevant facts and 
consider what lessons derived during 
audit could be of relevance for bank ‑
ing supervision under SSM.
21 
The audit approach and audit evidence 
collection methods are described in 
detail in Annex I .9 Czech Republic, Germany, 
Spain, France, Sweden and the 
United Kingdom.
21
 Observations
22 
The following observations need to be 
read in the context of the challenging 
times they represented for the Euro ‑
pean banking sector as a whole and 
the fact that during the period under 
review EBA was in a start‑up phase.
Regulatory reform:  
The Commission 
responded with a broad 
regulatory agenda for  
the banking sector and 
EBA contributed through 
its development of the  
technical standards and 
guidelines
23 
The term regulation  refers to a set of 
binding rules issued by a public body, 
or by a private institution but based on 
public mandate. The rules are applied 
by all regulators in the fulfilment of 
their functions; in the financial services 
area, they include prudential rules for 
the market (intended to prevent the 
emergence of entities with a doubtful 
reputation or without the necessary 
financial capacity for the operations 
they intend to implement) and those 
rules aimed at controlling the risks 
associated with financial activities, 
corporate governance and internal 
control systems, conduct‑of‑business 
rules, and methods of supervision10.The Commission has been 
timely in drafting legislation, 
but …
24 
Time management should include 
the processes to ensure a project is 
completed on time: define activities, 
sequence activities, estimate resourc ‑
es, estimate activity durations, develop 
schedule, control schedule11.
25 
The G20 and the Basel Committee 
have been leading the introduction of 
stronger and more globally coordinat ‑
ed regulation of the financial services 
industry. The Commission has partici ‑
pated in the G20 and Basel negotia ‑
tions on financial sector legislation. 
One of the most significant global de ‑
velopments is the agreement (BASEL 
III) that financial institutions should 
increase their levels of capital to cover 
their financial risks and thereby pro ‑
vide greater stability in the financial 
markets. The Commission responded 
to the financial crisis with a broad 
regulatory agenda. To introduce BASEL 
III in the EU DG Internal Market and 
Services prepared the capital require ‑
ments directive IV and regulation (CRD 
IV/CRR). Other important Commission 
proposals for regulation of the bank ‑
ing sector are outlined in Annex IV .10 Based on definition of the 
World Bank, Legal Aspects of 
Financial Services Regulation 
and the Concept of a Unified 
Regulator , World Bank, 
Washington, DC, 2006.
11 Project Management Institute, 
Project Management Body of 
Knowledge (PMBOK Guide),  
Chapter 6 — Time 
management, Fourth edition, 
2008.
22 Observations Table 3Time taken at key stages of the legislative drafting process
Start  CRD II CRD IIICRD IV 
— Direc ­
tive and 
regulationDirective establishing 
a framework for 
the recovery and 
resolution of credit 
institutions and 
investment firmsDeposit 
Guarantee 
SchemeReview of 
financial 
conglo­
merates 
directiveReview 
of the ac ­
counting 
directiveReview of 
the trans ­
parency 
directiveAverage 
period in 
weeks
Preparatory work 37 7 100 77 69 63 108 69 66
Formal 
inter ‑service 
consultation7 6 8 2 4 3 3 3 5
Final preparation 
of legislation2 0 0 1 1 3 20 8 4
Adoption by the 
college4 1 1 1 2 4 1 5 2
Adoption by the 
Parliament and 
the Council50 71 104 Not adopted Not adopted 65 85 85 77
Source:  ECA.26 
Table 3  shows the time taken by the 
Commission for the main steps in 
drafting a directive or regulation and 
in the subsequent political adoption 
process.
27 
In general DG Internal Market and 
Services prepared legislative propos ‑
als on time. The Court found that the 
planned and actual dates of adoption 
of legislation were mostly the same. 
Comparing DG Internal Market and 
Services’s actual dates of adoption of 
legislative proposals with the planned 
dates shows they were timely when drafting legislation during the financial 
crisis. Furthermore the College of Com ‑
missioners quickly adopted proposals 
received from DG Internal Market and 
Services (on average 2,4 weeks).
23 Observations
… there were tight deadlines 
for EBA, brief public consul ‑
tation and no overall impact 
assessment developed by the 
Commission
EBA faced tight deadlines
28 
EBA plays an important role in the 
preparatory phase of the legislative 
process and its regulatory workload 
and deadlines are predefined in the 
legislation. EBA then drafts the techni ‑
cal standards which provide technical 
details to complement the financial 
services legislation. These technical 
standards are then endorsed by the 
Commission in order to give them 
binding legal effect.
29 
The Commission first proposed the 
capital requirements directive IV and 
regulation in July 2011. The Commis ‑
sion, the Council and the European 
Parliament reached an agreement 
on the CRD IV/CRR in March 2013. On 
16 April 2013, the European Parlia ‑
ment approved the CRD IV proposals 
with amendments and the final text 
entered into force on 17 July 2013. The 
implementation date became 1 Janu ‑
ary 2014, 1 year later than originally 
planned.30 
CRD IV and CRR empower EBA to de ‑
velop more than 100 draft regulatory 
and implementing technical standards. 
The Commission’s proposals on CRD 
IV/CRR of July 2011 included a require ‑
ment for EBA to provide most of the 
technical standards by 1  January  2013, 
the then expected application date for 
CRD IV/CRR. As the deadlines for EBA 
remained unchanged, EBA was forced 
to carry out its work on the technical 
standards on the basis of the Commis ‑
sion’s draft proposal, with the risk that 
changes in the directive and regula ‑
tion would result in changes to the 
technical standards. In the course of 
the negotiations of the proposals for 
the CRD IV/CRR EBA was not invited as 
an observer in the legislative process 
and therefore EBA has not been able 
to comment on the mandates and 
timeliness of the legislative process in 
a systemic fashion.
Public consultation periods 
were short
31 
The Commission and EBA allow 
a standard period for public consulta ‑
tion. Prior to 2012 it was 8 weeks; since 
2012 it has been 12 weeks12.
32 
Both the Commission and EBA consult 
stakeholders in a variety of ways dur ‑
ing the legislative drafting process. An 
important part of this process is the 
use of public consultations.12 This is not a binding standard 
but is seen as necessary so 
that external stakeholders can 
properly prepare their 
responses to draft legislative 
proposals.
‑  COM(2002) 277 final of 
5 June 2002 ‘Towards 
a reinforced culture of 
consultation and 
dialogue — Proposal for 
general principles and 
minimum standards for 
consultation of 
interested parties by the 
Commission’. Since 
2012 12 weeks have been 
allowed.
‑  EBA, ‘ Public Statement 
on Consultation 
Practices’ , 
25 September  2012, 
paragraph 3(3).
24 Observations
33 
The Court’s review showed that at 
both the Commission and EBA several 
public consultations had been carried 
out with a short period for external 
stakeholders to respond. For example, 
the time allowed by the Commission 
for CRD II, CRD III and CRD IV/CRR con ‑
sultations was on average 4,8 weeks. 
For the 11 consultations that the ECA 
analysed from 2012, EBA’s average 
consultation period was 8,7 weeks. As 
a consequence of the tight deadlines 
(see paragraphs 28 to 30) the Commis ‑
sion and EBA have not observed their 
own stated best practice as regards 
the time allowed for stakeholders to 
provide their opinions, resulting in the 
risk of a limited number of responses 
or responses that are unable to go into 
sufficient depth, in particular for bank ‑
ing associations, which could lead to 
legislative proposals of poorer quality.
The Commission did not 
prepare an overall impact 
assessment for the legislative 
package
34 
All Commission initiatives with sig ‑
nificant impacts, including proposals 
of delegated and implementing acts, 
should be supported by an impact 
assessment. This should assess the 
potential effects of new legislation or 
policy proposals in economic (includ ‑
ing competitiveness), social and envi ‑
ronmental fields13.35 
Since the start of the financial crisis 
the Commission has launched many 
legislative proposals concerning bank ‑
ing, securities markets, insurance and 
pensions (see Annex IV ) and the Com ‑
mission prepared impact assessments 
and the draft legislative proposals in 
parallel. However, the Commission has 
not so far carried out a cross‑sectoral 
assessment of the cumulative impact 
on the financial markets of the full 
package of legislative proposals affect ‑
ing financial institutions.
Risk of sub‑optimal  
decision‑making by the  
EBA Board of Supervisors
36 
Members of the Board of Supervisors 
should act independently and only in 
the Union’s interest 14.
37 
The Board of Supervisors is the prin ‑
cipal decision‑making organ of EBA15. 
It consists of the head of the national 
public authority responsible for the su ‑
pervision of credit institutions in each 
of the 28 Member States. According 
to the legislation, the members of the 
Board of Supervisors should act inde ‑
pendently and objectively in the sole 
interest of the Union. Detailed rules of 
procedure set out in the arrangements 
for the Board of Supervisors (meetings, 
voting rules, etc.)16.13 SEC(2009) 92 of 
15 January  2009.
14 Recital 52 and Article 42 of the 
EBA regulation.
15 Articles 40 to 44 of the EBA 
regulation (appointment of 
the Chairperson, appointment 
of the Mediation panel, 
appointment of the members 
of the Banking Stakeholder 
Group, adoption of opinions, 
recommendations and 
decisions, etc).
16 Adopted in January 2011 and 
amended in July 2012.
25 Observations
38 
During the meetings with EBA repre ‑
sentatives and national supervisors, 
they stated that the members of the 
Board of Supervisors mainly represent ‑
ed their national interests. The Court 
observed at the Board of Supervisors’ 
meeting in February 2013 that most 
members stated their national posi ‑
tions rather than proposing a posi ‑
tion for the EU. This is contrary to the 
objective stated in the legislation.
Supervisory reform: EBA 
has contributed to cross ‑ 
border supervision but 
challenges remain
39 
Banking supervision  is the act of moni ‑
toring the financial performance and 
operations of banks in order to ensure 
that they are operating safely and 
soundly and following rules and regu ‑
lations. Bank supervision is conducted 
by governmental regulators and oc ‑
curs in order to prevent bank failures17. 
In the current European Union context 
(pre SSM) the supervision of complex 
cross‑border banks is performed 
through the interaction and coopera ‑
tion among home and host regulators 
that periodically gather, together with 
representatives of EBA, at the colleges 
of supervisors.
40 
With the rapid integration of the 
markets for financial services in the EU 
and the growth of the universal bank ‑
ing concept, prior to the crisis banks 
had developed significant high‑risk 
cross‑ border activities, both within 
the EU and globally. However, super ‑
vision of banks remained a national 
responsibility18.41 
Although EBA has a greater role in 
terms of supervision in the EU when 
compared with its predecessor, the 
CEBS, it does not carry out direct su ‑
pervision of financial institutions (see 
paragraph 9). EBA has a crucial role in 
developing and contributing to the 
consistent application of the single 
rulebook applicable to all Member 
States and to enhance convergence of 
supervisory practices across the Union 
as a whole.
42 
EBA has established a Department 
for Oversight, which consists of two 
units: Risk Analysis and Home‑Host 
Coordination. The Home‑Host Coordi ‑
nation Unit deals with the colleges of 
supervisors and attends and monitors 
the 44 largest of the colleges, con ‑
ducts thematic analysis and facilitates 
convergence of supervisory practices. 
However, it is understaffed: during 
the period of the audit it was operat ‑
ing with only 6 staff. The Risk Analysis 
Unit deals with the stress tests (see 
paragraph 59) and carries out regular 
analysis of the financial stability of 
the banking sector in Europe. Fur ‑
thermore, they have developed a set 
of risk indicators that feed into sec ‑
tor and bank risk reporting (so‑called 
risk dashboards) and they regularly 
provide their assessment to the ESRB, 
European Parliament, Council of the EU 
and other EU bodies.17 Webster’s New World Finance 
and Investment Dictionary .
18 Alford, D., ‘ The Lamfalussy 
Process And EU Bank 
Regulation: Another Step On 
The Road To Pan‑European 
Regulation?’ , Annual Review of 
Banking & Financial Law  
(Vol. 25: 1) p. 396, 2006.
26 Observations
43 
EBA has contributed to improving the 
cross‑border supervision of banks 
through its role as a facilitator and 
coordinator of the work of national 
supervisory authorities (NSAs). How ‑
ever, EBA lacks the authority to make 
or enforce decisions on supervisory 
convergence and to resolve disputes 
between NSAs (see paragraphs 44 to 
55). In addition the 2011 stress tests 
illustrated that EBA’s role in this key 
supervisory tool was limited (see para ‑
graphs 56 to 64).
… Supervisory convergence 
through the colleges of 
supervisors has improved 
but remains limited
Role of EBA in colleges of 
supervisors has improved but 
remains limited
44 
The Authority shall contribute to pro ‑
moting and monitoring the efficient, 
effective and consistent functioning 
of the colleges of supervisors 19. Such 
colleges should be established for 
all financial groups with significant 
cross‑border activity in the EU, meet 
regularly and achieve proper coordi ‑
nation of the supervisory work of the 
competent NSAs.45 
The establishment of the colleges of 
supervisors (‘colleges’) was one of 
the key elements to enhance super ‑
visory convergence between NSAs20. 
The legislation places responsibility 
for the overall supervision of banking 
group organisation, as well as coordi ‑
nation of the college, with the home 
supervisor21.
46 
The most important tasks of the col ‑
leges are to22:
 — provide a forum for information 
exchange;
 — undertake the joint decision on 
the level of capital for cross border 
banking groups;
 — undertake the joint risk 
assessment;
 — provide a framework for super ‑
visory activities in emergency 
situations.
47 
EBA has the right to participate in col ‑
leges, where its role is to streamline 
the information exchange process. 
The aim is to foster convergence and 
consistency across colleges in the 
application of Union law and to help 
overcome the current crisis and pre ‑
vent future ones.19 Article 21 of the EBA 
regulation.
20 The colleges were established 
by EU law in the revised capital 
requirements directive (CRD II) 
applicable from 
31 December 2010 (2009/111/
EC).
21 The other participants in the 
colleges are: competent 
authorities responsible for the 
supervision of subsidiaries of 
an EU parent credit institution 
or an EU parent financial 
holding company; competent 
authorities of a host country 
where significant branches are 
established; central banks as 
appropriate; third countries’ 
competent authorities where 
appropriate.
22 EBA Annual Report 2011, 
Chart 8, p. 29.
27 Observations
48 
EBA has contributed to the colleges’ 
work in many ways, including by:
 — issuing a good practice document 
for achieving consistency in the 
content and compatibility of joint 
decisions;
 — conducting a study of the appli ‑
cation of guidelines on the op ‑
erational functioning of colleges 
and decisions on the adequacy of 
cross ‑border capital23;
 — providing action plans and 
follow‑up in 2011 and 2012 to 
enhance the functioning of the 
colleges;
 — providing a tool for informa ‑
tion exchange in colleges via an 
IT‑platform.
49 
Furthermore, the file review showed 
that EBA has made significant efforts 
to resolve disputes between NSAs in ‑
formally (see paragraph 55). Thus EBA’s 
facilitation role in the colleges has 
improved their work. EBA also, by the 
end of 2013, had dealt with a number 
of mediation cases24. However, EBA’s 
impact on supervisory convergence 
through the colleges has been limited 
as it is not responsible for organising 
the colleges (e.g. setting the agenda) 
and cannot formally participate in 
their decision‑making.In some cases colleges spend 
too much time discussing 
procedures rather than 
focusing on risks
50 
File reviews and discussions with the 
NSAs showed that in several cases 
college meetings spent more time 
discussing procedural issues than en ‑
gaging in substantive discussion about 
risks. For example, home supervisors 
informed the participants in the col ‑
lege about their banks’ progress in 
EBA’s stress test but there was rarely 
a discussion of the results. EBA has 
given several presentations in the col ‑
leges, but so far mostly on operational 
issues. Nonetheless progress has been 
achieved in the colleges since 2011 by 
introducing joint risk assessments and 
joint decisions across the EU.
Information sharing in the 
colleges and documentation 
have not been complete
51 
According to the legislation, colleges 
should operate on the basis of written 
agreements25. The file review showed 
that EBA’s files for the colleges did not 
contain all key documents, such as 
the obligatory written agreement on 
the functioning of the college. One of 
EBA’s key contributions in the colleges 
is providing feedback on the function ‑
ing of the college to the home supervi ‑
sor26. However, in several cases there 
was no evidence of EBA’s feedback in 
the college files. EBA does not have 
an appropriate document manage ‑
ment system to facilitate knowledge 
retention.23 The CEBS previously published 
guidelines on the operational 
functioning of colleges (GL34) 
and the joint assessment of 
banks’ risks, as well as joint 
decisions on the adequacy of 
cross‑border banks’ capital 
within a college setting (GL39).
24 EBA Chairperson’s statement 
at Economic and Monetary 
Affairs Committee —  
30 September  2013.
25 Article 42a(3) of Directive 
2009/111/EC of the European 
Parliament and of the Council 
of 16 September 2009 
amending 
Directives 2006/48/EC, 
2006/49/EC and 2007/64/EC as 
regards banks affiliated to 
central institutions, certain 
own funds items, large 
exposures, supervisory 
arrangements, and crisis 
management (OJ L 302, 
17.11.2009, p. 97).
26 EBA Annual Report 2011, 
Chart 8, p. 29.
28 Observations
52 
EBA provides the NSAs with an IT plat ‑
form for information exchange in col ‑
leges. The Court found that this serves 
as a document archiving system rather 
than being actively used by the NSAs 
as a means for ongoing risk discussions 
outside the annual or biannual college 
meetings. Such discussions often take 
place bilaterally rather than via the 
IT‑platforms. Considering that there 
are up to 20 NSAs in a college, there is 
a risk that important information may 
not be provided to all participants.
… EBA’s role in mediation 
was limited due to legal 
constraints
53
 — Article 19(1) EBA (binding me ‑
diation): ‘(…) where a competent 
authority disagrees about the 
procedure or content of an action 
or inaction of a competent author ‑
ity of another Member State (…), 
the Authority, at the request of 
one or more of the competent au ‑
thorities concerned, may assist the 
authorities in reaching an agree ‑
ment (…). In cases (…) and where 
on the basis of objective criteria, 
disagreement between competent 
authorities from different Member 
States can be determined, the Au ‑
thority may, on its own initiative27, 
assist the authorities in reaching 
an agreement (…)’. — Article 31 EBA (non‑binding media ‑
tion): ‘The Authority shall promote 
a coordinated Union response, 
inter alia, by: (…) c) without 
prejudice to Article 19, carrying out 
non‑binding mediation upon a re ‑
quest from the competent authori ‑
ties or on its own initiative; (…)’.
54 
EBA has a role in resolving disputes 
between NSAs. However, this role is 
limited as EBA can provide binding 
mediation only in restricted cases 
where there is a specific legislative 
provision28 and only if it is requested 
by the national authorities in dispute. 
Although there have been signs of dis ‑
agreement between some NSAs, and 
EBA has set up procedures to handle 
disputes, no NSA has requested bind ‑
ing mediation from EBA at the time of 
the audit. Generally the national su ‑
pervisors preferred to resolve disputes 
bilaterally, with some expressing their 
unwillingness to escalate disputes to 
EBA level.
55 
However, the file review showed 
that EBA has made significant efforts 
to resolve disputes between NSAs 
informally without using mediation 
procedures. In addition, since the last 
visit of the European Court of Auditors, 
EBA has started a few non‑binding 
mediation cases29 as a result of its 
investigations into potential breaches 
of European law.27 EBA’s powers of binding 
mediation have been 
extended under the new 
capital requirements directive 
and regulation (CRD IV/CRR). 
Nevertheless, the ‘own 
initiative’ power still has to be 
specifically referred to in the 
secondary legislation which 
provides the binding 
mediation mandate.
28 At the time of the Court’s audit 
binding mediation was 
foreseen in only a few cases, 
including: taking a joint 
decision for the designation of 
‘significant branch’ and joint 
decision to determine the 
adequacy of the own funds 
required on a consolidated 
basis as well as on solo basis.
29 Besides the ‘binding 
mediation’ role requested by 
specific legislative provisions, 
EBA may also perform 
a general coordination role 
through ‘non‑binding 
mediation’ either upon 
a request from the competent 
authorities or on its own 
initiative (Article 31 of the EBA 
regulation).
29 Observations
Supervisory reform: role 
of EBA in stress tests
Issues with the reliability of 
the 2011 bank stress tests, 
however …
56 
According to the EBA regulation, it 
may initiate and coordinate EU‑wide 
stress tests to assess the resilience of 
financial institutions, in particular the 
‘systemic risk’. EBA should ensure that 
a consistent methodology is applied at 
national level to such tests and address 
a recommendation to the competent 
authority to correct any issues identi ‑
fied in the stress test30.
57 
In 2011 EBA carried out a stress test 
of 91 banks31 in 21 EU countries32. The 
objective was to assess the resilience 
of the EU banking system and the sol ‑
vency of individual institutions33. The 
solvency of the banks was assessed 
against a benchmark defined with ref ‑
erence to the Core Tier 1 capital34,set 
at 5 % of the risk‑weighted assets. The 
stress test also led to detailed disclo ‑
sure of banks’ data.EBA had a limited legal 
mandate and staff to conduct 
the 2011 stress test
58 
The stress test itself was a bottom‑up 
exercise. The European Commission 
and the ECB, respectively, designed 
the baseline scenario35 and the ad ‑
verse scenario36. The banks applied 
the adverse scenario and calculated 
the results themselves. The NSAs had 
direct contact with the banks and did 
the first quality check of the banks’ 
results. The role of EBA was to provide 
the methodological framework37 and 
to coordinate the work of the NSAs as 
well as perform consistency checks of 
the banks’ data provided by the NSAs.
59 
The EBA review of the data was carried 
out by 10 seconded national experts 
and five EBA staff. The quality checks 
helped to reduce data inconsistency. 
However, the large scale of the exer ‑
cise (covering 91 banks), the limited 
timeline (4 months), EBA’s limited 
mandate and legal scope (it did not set 
the scenarios, it did not perform the 
calculations of the results, and it did 
not have direct access to the banks), 
made it difficult to carry out detailed 
checks on banks’ data. All these factors 
affected the overall reliability of the 
stress test results.30 Article 21, paragraph 2 of EBA’s 
regulation.
31 The results were published for 
90 banks only. Due to 
disagreement on the 
definition of Core Tier 1 
capital, one bank did not 
authorise EBA to publish the 
results calculated by EBA.
32 The exercise covered over 
65 % of the EU banking 
system’s total assets, and at 
least 50 % of the national 
banking sectors in each EU 
Member State. If the majority 
of banking assets in a country 
were held by banking groups 
operating in another Member 
State, no other independent 
bank was included in the 
exercise, because the country 
was sufficiently covered by the 
inclusion of assets 
consolidated under those 
banking groups.
33 The stress tests exercises 
carried out by CEBs before 
2011 were not included in the 
scope of the audit.
34 The Basel Committee on 
Banking Supervision, whose 
Basel III rules form the basis for 
global bank regulation, 
focuses on the Core Tier 1 
ratio, which essentially 
consists only of equity and 
retained profits.
35 The consensus expectation 
regarding the evolution of the 
economy.
36 The adverse scenario was set 
by the ECB from an agreed set 
of risks at December 2010, 
using Commission forecasts 
from Autumn 2010 as the 
baseline, Opening Statement 
Publication of the 2011 
EU‑wide Stress Test Results, 
London 15  July  2011.
37 The methodological 
framework (51 pages) 
included the main features of 
the exercise (e.g. scope, time 
horizon and reference date), 
and the assumptions made for 
the exercise (e.g. static balance 
sheet, zero growth and 
constant business mix) as well 
as technical guidance and 
definitions (e.g. different 
components of capital, how to 
deal with hedging positions, 
what to reflect in the evolution 
of profits and losses).
30 Observations
The 2011 stress tests and examples of subsequent emerging capital needs up to the 
end of 2013 
January 2011: EBA announces the 2011 stress test.
15 July 2011: EBA publishes the results of the stress test of 90 banks38. Eight banks (five Spanish, two 
Greek and one Austrian) fall below the capital threshold of 5 %. The total capital shortfall was found to be 
2,5 billion  euro.
10 October 2011: Belgium, France and Luxembourg agree to restructure Dexia and to grant it a financing guar ‑
antee of up to 90 billion euro. Dexia was assessed in the stress test as one of the safer banks in Europe (ranked 
No 13 out of 91).
May 2012: Bankia, the largest holder of real estate assets in Spain, is nationalised and requests a bailout of 
19 billion euro. It also revises the 2011 profit and loss statement from an initial profit of 309 million euro to 
a loss of 4,3 billion euro. In the stress test (adverse scenario) Bankia’s Core Tier 1 ratio would fall to 5,4 % by the 
end of 2012, still above the required minimum threshold of 5 %.
2012: The Spanish authorities commission a stress test39 of 14 banking groups, comprising 90 % of the Spanish 
banking system. This study estimates that under the adverse scenario, total capital needs to be close to 60 bil ‑
lion euro. It also estimates that over the 3‑year period, the Spanish banks will cumulatively suffer credit losses 
of 270 billion euro.
Beginning of 2013: SNS Bank (a daughter company of SNS Reaal) is nationalised by the Dutch government. The 
bank had incurred heavy losses in its real estate holdings, particularly in those abroad. In the 2011 stress tests, 
the Tier 1 capital ratio of SNS bank was 8,4 %, well above the required minimum of 5 %, and would fall to 7 % 
at the end of 2012.
End of 2013: The two biggest banks in Slovenia — Nova Ljubljanska banka (NLB d.d.) and Nova Kreditna Banka 
Maribor (NKBM d.d.) were subject to an asset quality review and stress test40. Compared to the assessment 
made in the 2011 EBA exercise where there was no capital shortfall identified, the 2013 exercise led the Slo ‑
vene government to recapitalise NLB d.d. by 1 551 million euro and NKBM d.d. by 870 million euro.
38 One bank refused to give permission to publish all its data.
39 Carried out by Oliver Wyman, an independent external consulting company.
40 A comprehensive review was carried out by Oliver Wyman, Roland Berger, Deloitte, EY, CBRE, Jones Lang LaSalle, Cushman & Wakefield and 
Colliers (See press release Bank of Slovenia dated 12 December 2013).Box 1
31 Observations
60 
The EBA stress test was a calculation of 
potential capital shortfall. The stress 
test was one of a range of supervisory 
tools used for assessing the resilience 
of individual institutions as well as the 
overall resilience of the system41. It 
did not include an assessment of the 
quality of the banks’ assets or of the 
underlying collateral, nor did it test the 
bank’s liquidity.
61 
For the reasons stated in paragraphs 
59–60, the stress tests could not iden ‑
tify the problems in some European 
banks which later had to be bailed out 
(see Box 1 ).
… Recapitalisation exercise 
in 2012 contributed to 
restoring confidence
62 
The 2011 stress test was followed in 
2012 by a recapitalisation exercise42. 
The objective was to strengthen the 
capital positions of a sample of banks 
by building up an exceptional and 
temporary capital buffer. EBA required 
an increase in Core Tier 1 ratio43 to 9 % 
by the end of June 201244.63 
EBA monitored the implementation 
of the banks’ recapitalisation plans 
and issued the final report on 3 Oc ‑
tober 2012. Overall, the exercise led 
to an increase of the banks’ capital 
position of more than 200 billion euro. 
27 banks with an initial shortfall had 
submitted capital plans and had 
strengthened their capital position by 
116 billion  euro45. The recapitalisation 
exercise contributed to restoring confi ‑
dence in the banking sector46.
64 
No resolution mechanism or financial 
backstop was in place for the stress 
tests at an EU level to support banks 
directly. Ad hoc national solutions for 
injecting capital into banks were nec ‑
essary for those banks that were later 
assessed as weak, and which could not 
raise capital in the financial markets, 
thus placing pressure on national 
governments’ budgets. The situation 
differed in the United States, where fi ‑
nancial backstops were in place before 
the stress tests (see Annex V ).41 EBA, ‘ Overview of the EBA 
2011 banking EU‑wide stress 
test’ , 18 March 2011.
42 On 26 October 2011 the Heads 
of State and Governments of 
the euro area countries agreed 
a set of comprehensive 
measures for restoring 
confidence. One of these was 
to carry out the 
recapitalisation exercise. Other 
measures related to debt relief 
for Greece and leveraging of 
the European Financial 
Stability Facility (EFSF).
43 Core Tier 1 capital versus risk 
weighted assets.
44 EBA, ‘ Capital buffers for 
addressing market concerns 
over sovereign exposures  — 
Methodological note’ , 
8 December 2011.
45 EBA, ‘ Final report on the 
implementation of Capital 
Plans following the EBA’s 2011 
Recommendation on the 
creation of temporary capital 
buffers to restore market 
confidence’ , 3 October 2012.
46 Since the recapitalisation of 
the banks the MSCI Europe 
Financials stock index has 
shown a steady upward trend.
32 Observations
Supervisory reform: con ‑
sumer protection and key 
management systems 
have yet to be developed
… Minimal resources and 
few voting members with 
a full mandate in consumer 
protection
65 
Consumer protection can be defined 
as: ‘the safeguarding of consumers’ 
interests in terms of quality, price, 
and safety, usually within a statutory 
framework’47. In the financial sector 
specific consumer protection issues 
include product safety, transparency, 
complete and correct information, 
unfair commercial practices, foreclo ‑
sures, forbearance, mediation, and 
complaints handling.
66 
Article 9(1) of the EBA regulation: ‘The 
Authority shall take a leading role in 
promoting transparency, simplicity 
and fairness in the market for consum ‑
er financial products or services across 
the internal market, including by:
 — collecting, analysing and reporting 
on consumer trends;
 — reviewing and coordinating finan ‑
cial literacy and education initia ‑
tives by the competent authorities;
 — developing training standards for 
the industry; and
 — contributing to the development 
of common disclosure rules.’Consumer protection 
under‑resourced
67 
As a consequence of the financial 
turmoil, consumer protection was 
not given a high priority: throughout 
2011 and 2012 EBA focused its efforts 
on addressing systemic risk, which was 
the priority of nearly all national and 
international regulators. Only a small 
number of staff were allocated to this 
activity. For example, at the end of 
February 2013 the Consumer Protec ‑
tion Unit consisted of only two staff 
members. The Head of Unit position 
had been vacant for several months. 
During 2011 there was no discussion 
on consumer protection issues on the 
Board of Supervisors; the Chair merely 
noted the need to move consumer 
issues up in EBA’s list of priorities. In 
2012 EBA took up more work on con ‑
sumer protection, leading to several 
discussions on the Board of Supervi ‑
sors and the publication of a number 
of documents in 2013.
68 
All three European Supervisory 
Authorities (ESAs)48 have consumer 
protection as an objective. This leads 
to a certain overlap, as consumers may 
buy insurance at a bank or an insur ‑
ance company, or purchase invest ‑
ments at a bank or an investment com ‑
pany. The ESAs are therefore obliged 
to coordinate their work on consumer 
protection, which adds complexity 
to the governance when they have 
to make consistent decisions on the 
protection of consumer rights.47 Source:  QFinance Dictionary  
(http://www.qfinance.com/
dictionary ).
48 EBA, EIOPA and ESMA.
33 Observations
Few voting members have 
a full mandate for consumer 
protection
69 
Consumer protection is organised dif ‑
ferently in each Member State (see Ta-
ble 4 ). In many Member States where 
responsibility is shared, the NSAs’ 
consumer protection mandate is rather 
limited as their main responsibility 
is ensuring overall financial stability 
rather than dealing with specific con ‑
sumer protection issues.70 
In addition to the NSAs, there are 41 
competent authorities which have 
some responsibility in defending the 
interests of consumers at a national 
level. The diversity of the domestic 
arrangements for consumer protection 
makes it impossible for EBA to have 
a single contact point in each Member 
State, which further complicates its 
handling of this area.
49 Article 40(5) of the EBA 
regulation.Table 4NSAs’ consumer protection mandate
Country
Belgium
Bulgaria
Czech Republic
Denmark
Germany
Estonia
Ireland
Greece
Spain
France
Italy
Cyprus
Latvia
Lithuania
Luxemburg
Hungary
Malta
Netherlands
Austria
Poland
Portugal
Romania
Slovenia
Slovakia
Finland
Sweden
United Kingdom
No mandate X X
Shared 
mandateX X X X X X X X X X X X X X X X X
Sole 
responsibleX X X X X X
No info X X
Source:  EBA.
71 
When the Board of Supervisors 
discusses an item that does not fall 
within the mandate of the voting NSA, 
the latter may bring a representative 
from the relevant national authority, 
who shall be non‑voting49. However, in 
2011  and  2012, no representatives of national consumer protection au ‑
thorities were present at the Board of 
Supervisors’ meetings when consumer 
protection issues were discussed (the 
persons accompanying the voting 
members worked either for the NSA or 
for the Central Bank).
34 Observations
EBA’s limited legal mandate
72 
EBA’s scope of action as defined in 
Article 1(2) of the EBA regulation does 
not include directives that are related 
to consumer protection, with the ex ‑
ception of a small part of the payment 
services directive. The first mandate 
given to EBA to develop technical 
standards in this area is the mortgage 
credit directive (MCD), which was 
adopted in February 2014.
… EBA still has to imple ‑
ment key internal systems to 
ensure efficient and effective 
performance
73 
Performance indicators permit meas ‑
urement of progress towards the 
objectives of an organisation. Perfor ‑
mance measurement systems are used 
in EU institutions and agencies, e.g. in 
the form of key performance indicators 
which evaluate the key activities or the 
impact of the activities in which the 
institution or agency is engaged.74 
EBA has not so far introduced a com ‑
prehensive performance measurement 
system for its core business areas. 
Depending on the areas of activity, 
different KPIs may be determined50. 
Although in its multiannual staff policy 
plan for 2014–16 EBA thoroughly justi ‑
fies the need for additional resources 
in 2014, there is no document clearly 
linking medium‑term objectives and 
tasks with recruitment needs.
Supervisory reform: EBA’s 
changing role
75 
Given the introduction of SSM the ECB 
can only adopt guidelines and recom ‑
mendations and take decisions subject 
to and in compliance with regulatory 
and implementing technical standards 
developed by EBA51.
76 
Following the introduction of the SSM 
the role of EBA in developing regula ‑
tion will remain essentially unchanged 
(see paragraphs 14 to 15). For example, 
EBA should continue to develop and 
contribute to the consistent applica ‑
tion of the single rulebook and en ‑
hance convergence of supervisory 
practices across the whole Union52.50 For example, the number of 
online enquiries received and 
average time taken to answer 
them, number of responses 
received to public 
consultations and time taken 
to analyse them, number of 
points added to the colleges’ 
agendas per annum, numbers 
of hours of training per 
professional staff, % of 
colleges of supervisors 
actively using the IT platform 
for exchange of information, 
etc.
51 Article 4(3) of Regulation (EU) 
No 1024/2013 (SSM 
Regulation).
52 Recital 4 of Regulation (EU) 
No 1022/2013.
35 Observations
77 
However, there are areas where there 
is a lack of clarity as to the allocation of 
responsibilities between EBA and the 
ECB:
 — EBA will continue to be responsible 
for developing and maintaining 
the European handbook on the 
supervision of financial institutions 
for the whole Union which sets out 
supervisory best practice in meth ‑
odologies and processes53. How ‑
ever, both the EBA and the ECB are 
working on ‘supervisory hand ‑
books ’ and it is not clear what each 
handbook will cover. There is a risk 
of contradicting or unclear rules/
guidelines and also of duplication 
of work. In addition, it could cause 
confusion in the SSM countries as 
to which handbook will be valid in 
which situation.
 — While EBA is responsible for initiat ‑
ing and coordinating EU‑wide 
stress tests, it is the responsibility 
of the competent authorities to 
conduct them. However, there is 
an ambiguity regarding who has 
overall responsibility for them.
 — The legislation says that the ECB 
should develop contacts and enter 
into administrative arrangements 
with the supervisory authori ‑
ties and administrations of third 
countries and with international 
organisations, without duplicating 
EBA54.78 
The legislation indicates that the ECB 
and the national competent authori ‑
ties of EU Member States outside the 
SSM should conclude a memorandum 
of understanding setting out how they 
will cooperate with one another in 
the performance of their supervisory 
tasks55. These memoranda will consti ‑
tute bilateral cooperation between the 
EU’s main banking supervisors rather 
than strong coordination via EBA.
79 
EBA’s mandate, for example with 
reference to its role in the college of 
supervisors, could thus be called into 
question if the ECB agree on supervi ‑
sory practices with supervisors in the 
Member States outside the SSM.
80 
Furthermore, EBA’s staffing, as report ‑
ed in paragraphs 10 and 67, is depend ‑
ent on staff from the NSAs (national 
experts or short ‑term assistance on 
specific tasks) as well as contractual 
agents. For positions which involve 
the development of policy EBA mainly 
recruits from NSA’s or the banking 
industry. One of the practical chal ‑
lenges in the development of the 
SSM will be the need to recruit staff 
to work in the ECB (SSM) and EBA. 
Both will be competing in the same 
job market. The ECB plans to recruit 
some 1 000 experts and EBA intends to 
more than double its staff from 94 to 
199 between 2012 and 2016.53 Article 1(5)(a)(i) of Regulation 
(EU) No 1022/2013.
54 Recital 31 of the SSM 
regulation.
55 Article 3(1) of the SSM 
regulation.
36
 Conclusions and 
recommendations
81 
The Court assessed that the Commis ‑
sion’s reform of the banking sector 
legislation and the creation of the EBA 
and their activities in setting up the 
new regulation and supervision sys ‑
tem of the banking sector established 
in 2011 were important first steps in 
response to the financial crisis. Howev ‑
er, shortcomings were identified in the 
functioning of the new arrangements 
in respect of cross‑border banking su ‑
pervision, assessment of the resilience 
of EU banks and promotion of con ‑
sumer protection in the market for fi ‑
nancial products or services in the EU. 
These are summarised below and a set 
of recommendations is put forward by 
the Court for consideration by policy ‑
makers and institutions involved in the 
regulatory and supervisory response 
to the financial crisis.
82 
EBA has provided the first elements 
of a new regulatory and supervisory 
system for the banking sector, within 
resources available and limited legal 
powers. It has thus, to the extent pos ‑
sible, fulfilled its objective of contrib ‑
uting to the short, medium and long ‑ 
term stability and effectiveness of the 
financial system. Within the context of 
the newly established SSM under the 
ECB there is a need for further clari ‑
fication of roles and responsibilities, 
particularly between the ECB, NSAs 
and EBA regarding EU‑wide supervi ‑
sory tasks.Regulatory reform
83 
The Commission has in general been 
timely when drafting banking sec ‑
tor legislation. However, the strict 
deadlines stemming from global 
agreements in G20 and the Basel 
Committee, and the delays in political 
negotiations, have reduced the time 
available for external stakeholders to 
provide input through public consul ‑
tation. Furthermore, it has resulted in 
short deadlines for EBA to draft techni ‑
cal standards and EBA has not been 
able to comment on the mandates and 
timeliness in the legislative process 
in a systematic fashion. Although 
many legislative proposals have been 
made in recent years (and others are 
currently in preparation) there has 
been no cross‑sectoral assessment of 
the impact of the whole package of 
proposals.
37 Conclusions and recommendations
Recommendation 1
Sufficient time should be allowed 
for drafting and for consultation 
and a cross -sectoral impact analysis 
should be considered
— The legislator could take into ac ‑
count the time needed for techni ‑
cal standards to be drafted and the 
Commission’s legislative proposals 
should provide sufficient time for 
EBA to develop technical stand ‑
ards. For this reason, EBA could 
be invited by the legislator as an 
observer in the legislative process 
or otherwise be able to comment 
on legislative proposals which 
envisage a role for EBA.
— The Commission and EBA should 
follow their own best practice 
guidelines with respect to the time 
afforded to external stakeholders 
to provide their opinion in public 
consultations.
— The Commission should carry out 
a cross‑sectoral analysis of the 
impact of the whole package of 
proposals. Consideration should 
be given to using an external 
evaluator who has the required ex ‑
pertise to conduct such a complex 
exercise.
Supervisory developments: 
implications for EBA’s super ‑
visory role
84 
EBA has contributed to improv ‑
ing the cross‑border supervision of 
banks through its role as a facilitator 
and coordinator of the work of NSAs 
and through its regulatory role in developing the single rulebook and 
a common supervisory handbook. 
However, EBA lacks the authority and 
the adequate legal mandate to make 
or enforce decisions on supervisory 
convergence and to resolve disputes 
between NSAs. Consequently EBA’s 
contribution to supervisory conver ‑
gence overall has been relatively 
limited.
Colleges of supervisors
85 
Colleges of supervisors exist for 
cross‑border banking groups — i.e. 
those which have significant subsidi ‑
aries or branches in different Mem ‑
ber States. EBA has the right to fully 
participate in these colleges with 
a view to streamlining the informa ‑
tion ‑exchange process and fostering 
convergence and consistency across 
colleges in the application of Union 
law. However, college meetings have 
often been used more for discussing 
procedural issues than for substan ‑
tive discussion of risks. As a result, 
EBA’s contribution to supervisory 
convergence through the colleges has 
been relatively limited and informa ‑
tion sharing has been sub‑optimal. In 
the new supervisory structure fol ‑
lowing the introduction of the SSM, 
the composition and the number of 
supervisory colleges will change. They 
will still have an important role for 
those cross‑border banks that have 
significant subsidiaries or branches in 
non‑participating Member States.
38 Conclusions and recommendations
Recommendation 2
EBA should continue to promote 
the effectiveness of the colleges of 
supervisors
— EBA should further encourage the 
colleges to discuss risks by, for 
example, assessing systemic risks, 
discussing risk dashboards and 
stress tests, etc. In this context, 
EBA should ensure close coopera ‑
tion internally between the college 
supervisory team and the risk 
analysis team.
— For the benefit of the home super ‑
visor and with a view to its own re ‑
tention of knowledge, EBA should 
ensure that feedback is always 
given to the home supervisor and 
that it is always comprehensively 
documented.
— EBA should more actively promote 
the colleges’ use of the IT‑plat ‑
forms as a forum for information 
exchange rather than an archiving 
system.
— EBA should implement a docu ‑
ment management system in order 
to facilitate its retention of knowl ‑
edge and ensure the long ‑term 
efficiency and effectiveness of its 
performance.
Bank stress tests
86 
EBA had the role of facilitating and 
coordinating the 2011 stress test, but 
it had neither the staff nor the neces ‑
sary mandate to ensure the reliability of the stress test exercise. In addition, 
the stress test was conducted without 
financial ‘back stop’ measures at EU 
level. Although the 2011 stress test was 
helpful in initiating the recapitalisa ‑
tion of a large number of banks, it has 
also revealed the limitations of such 
exercises when not combined with an 
assessment of asset portfolio quality.
Recommendation 3
A clear and wide -ranging mandate 
and sufficient experienced staff are 
needed for the reliability of bank 
stress tests. EU -wide resolution 
mechanisms should be designed to 
work efficiently
— The authority responsible for con ‑
ducting stress tests should have 
a clear and wide‑ranging mandate 
as well as sufficient experienced 
staff in order to ensure the reliabil ‑
ity of the exercise.
— EU policymakers should seek to 
ensure that resolution mechanisms 
and adequate back ‑stop measures 
be put in place commensurate 
with the scale and structure of 
cross‑border banking activity.
39 Conclusions and recommendations
Consumer protection
87 
EBA has not been able to fulfil its 
consumer protection mandate due to 
a lack of resources, legal constraints 
and the fact that national consumer 
protection authorities are not suf ‑
ficiently represented in the EBA’s 
decision ‑making process. Many of the 
members of the Board of Supervisors 
have only a limited consumer protec ‑
tion mandate or none at all. Thus there 
is a risk of sub‑optimal decision‑mak ‑
ing, not only at the Board of Supervi ‑
sors but also in the standing commit ‑
tees and sub‑groups where Member 
States are represented.
88 
Another matter is that all three ESAs 
have consumer protection as an objec ‑
tive. This leads to a certain overlap 
as consumers may buy insurance at 
a bank or an insurance company. The 
ESAs are therefore obliged to coordi ‑
nate their work on consumer protec ‑
tion as well as the decision‑making 
process, which adds an additional 
layer of governance complexity to the 
protection of consumer rights.
Recommendation 4
Strengthened measures are needed 
for consumer protection in the EU 
financial sector
— Consideration should be given to 
how administrative resources at EU 
level can be used more efficiently 
and effectively in order to promote 
consumer protection in the EU.Support activities
89 
The prerequisite for effective perfor ‑
mance monitoring is the establishment 
of a performance measurement system 
using for example key performance 
indicators. EBA has yet to implement 
such a system to ensure it operates ef ‑
ficiently and effectively.
Recommendation 5
Establishment of a performance 
measurement system
— EBA should establish a perfor ‑
mance measurement system for 
core activities in order to track its 
success in reaching its goals and 
objectives as an organisation.
SSM implications
90 
In its regulatory role, EBA has a man ‑
date to develop technical standards 
and could usefully use its expert 
knowledge to continue in this task. 
However, questions arise over its fu ‑
ture role in the supervision of banks, as 
its role is limited to coordinating and 
facilitating NSAs work and it lacks the 
power to impose specific decisions on 
NSAs. As a consequence, there is a risk 
of uncertainty over roles and respon ‑
sibilities and of overlap between EBA 
and the ECB.
40 Conclusions and recommendations
Recommendation 6
Clarification of roles and 
responsibilities is necessary for 
a successful banking union and 
effective banking supervision
— Banking union requires a clear 
division of roles and responsibili ‑
ties between EBA, the ECB and the 
NSAs, both those in and those 
outside the SSM. These roles and 
responsibilities should be clarified 
in the legislation or memoranda 
of understanding between the 
institutions/authorities concerned.— Procedures should be set up to 
ensure close and frequent coop ‑
eration and information exchange 
between the different bodies. 
Particular attention should be paid 
to the period of transition before 
the SSM is fully established.
— Close cooperation is needed 
between EBA, the SSM and other 
EU national supervisory authori ‑
ties not participating in the SSM 
and the EU ‑wide resolution 
mechanisms.
This report was adopted by the Court of Auditors in Luxembourg at its meeting 
of 15 May 2014.
 For the Court of Auditors
 Vítor Manuel da SILVA CALDEIRA
 President

41
 Annexes
Overview of the audit approachAnnex I
Audit
obje ctives
Audit
criteria
Evidence
collec tion
methodsHas the Commission’s 
introduction of new regulations 
been well managed?
- Recommendations made by expert groups
- Project management Body of Knowledge 
(PMBOK Guide) 
- Deadlines set in management plans and in 
level 1 legislation 
- Legal requirements in the EBA Regulation in 
relation to/uniF6BD a centrally accessible database of registered 
financial institutions
/uniF6BD the strengthening of the European system 
of national deposit guarantee schemes 
- Correct implementation of EU rules in the 
Member States as stipulated in the respective directives
- Impact assessments performed according to 
guidelines
- Review of management plans and planning 
documents
- Review coordination with other DGs- Interview with key staff- Compare actual publication dates with 
planned dates and deadlines
- Verify relevant documents- Review the procedures at the Commission- Review of the EBA’s 2011 and 2012 work 
programmes
- Review of the establishment/recruitment plan- Review of progress reports and annual activity 
reports
- Interview with key staff- Review of relevant list of supervisory colleges- Review of meeting minutes- Analysis of procedures on information sharing- Review published documentsHas EBA’s role in banking 
supervision been eﬀective?Did the Commission and EBA carry out satisfactorily their responsibilities in setting up 
the new arrangements for the regulation and supervision of the banking sector and 
are these new arrangements functioning successfully?
- Legal requirements in the EBA Regulation in 
relation to
/uniF6BD the establishment of supervisory colleges 
and promotion of best practices
/uniF6BD mediation
/uniF6BD co-operation with other supervisory 
authorities
/uniF6BD the exchange of information 
/uniF6BD the organisation of stress tests
/uniF6BD the development of supervisory standards
/uniF6BD the issuance of guidelines and 
recommendations 
/uniF6BD consumer protection 
- Project Management Body of Knowledge 
(PMBOK Guide)
- Recruitment plan and work programme- Performance measurement system
42 Annexes
Description of audit evidence collection methods
Preliminary study
01 
Prior to undertaking the audit, a preliminary study was made of the Commis ‑
sion’s management of the financial crisis. DG Internal Market and Services 
is the directorate ‑general with responsibility for the Commission’s policy 
response to the crisis in the financial sector. This exploratory work was based 
on the review of key documents, such as applicable legislation, annual re ‑
ports and management plans, and meetings with key staff in several units of 
the Commission, the ECB, the ESRB and the EBA.
Audit visits to Commission and EBA
02 
The audit team visited DG Internal Market and Services three times to collect 
audit evidence. During these visits the auditors interviewed key staff in 10 
units of the directorate ‑general:
 —Internal Audit Capability;
 —Unit 02, Financial services policy, relations with the Council;
 —Directorate A, Unit A1, Human resources and planning;
 —Directorate B, Unit B2, Analysis, impact and evaluation;
 —Directorate B, Unit B3, Application of single market law and European 
Parliament;
 —Directorate B, Unit B4, International affairs;
 —Directorate E, Unit E2, Business to business services;
 —Directorate F, Unit F2, Corporate governance, social responsibility;
 —Directorate F, Unit F3, Accounting and financial reporting;
 —Directorate H, Unit H1, Banks and financial conglomerates;Annex I
43 Annexes
03 
Besides the interviews a file review was conducted for a selection of nine 
legislative initiatives (see Annex IV ).
04 
The audit team visited EBA twice. Apart from the horizontal and support 
units, the EBA is mainly organised in two directorates ‘Oversight’ and ‘Regula ‑
tion’. During these visits a total of 22 thematic meetings1 were organised with 
key staff (some themes were discussed during both visits).
05 
A file review on the functioning of the supervisory colleges was conducted 
for a selection of 12 banks. The files of 10 banks were selected and reviewed 
with respect to the 2011 stress test and 2012 recapitalisation exercise.
Fact finding visits
06 
Apart from the visits to DG Internal Market and Services and the EBA the au ‑
dit team collected information and expert opinions about banking regulation 
and supervision:
(a) By visiting the other ESAs (EIOPA and ESMA), the ESRB, the ECB and the 
European Banking Federation;
(b) Through information gathering visits to six EU Member States (Czech 
Republic, Germany, Spain, France, Sweden and the United Kingdom). 
Typically, the NSA2 and the banking federation were visited during these 
fact‑finding missions. In Spain the FROB (Fund for Orderly Bank Restruc ‑
turing) was also visited;1 EBA management, SCARA 
(Standing Committee for 
Accounting, Reporting and 
Auditing), consumer 
protection, systemic risk, 
common supervisory culture, 
implementation of legislation, 
IT systems, HR, ESRB, Joint 
Committee, mediation, stress 
tests, supervisory colleges, 
technical standards and work 
programme.
2 In some countries more than 
one institution is responsible 
for banking supervision; e.g. 
Germany: Bafin and 
Bundesbank, Sweden: 
Riksbanken and 
Finansinspektionen, UK: Bank 
of England and FSA.Annex I
44 Annexes Annex I(c) By visiting regulators and supervisors in two third countries — the United 
States and Canada:
 —Office of the Comptroller of the Currency (U.S.)
 —American Bankers Association
 —US Department of the Treasury
 —Federal Reserve Bank, Board of Governors (Washington)
 —Federal Reserve Bank, New York
 —Office of the Superintendent of Financial Institutions (Canada)
(d) By convening an expert panel to discuss the initial observations of the 
audit before preparing the first draft of the special report.
45 Annexes Annex I I
Areas of Union competence 
deriving from the Treaty
(Articles 26 and 114 of the Treaty 
on the Functioning of the European 
Union)  Article 26
‘1. The Union shall adopt measures with the aim of establishing or ensuring the functioning of the internal market, in 
accordance with the relevant provisions of the Treaties.
2. The internal market shall comprise an area without internal frontiers in which the free movement of goods, 
persons, services and capital is ensured in accordance with the provisions of the Treaties.
3. The Council, on a proposal from the Commission, shall determine the guidelines and conditions necessary to 
ensure balanced progress in all the sectors concerned.’
Article 114
‘1. Save where otherwise provided in the Treaties, the following provisions shall apply for the achievement of the 
objectives set out in Article 26. The European Parliament and the Council shall, acting in accordance with the 
ordinary legislative procedure and after consulting the Economic and Social Committee, adopt the measures for 
the approximation of the provisions laid down by law, regulation or administrative action in Member States which 
have as their object the establishment and functioning of the internal market.’
Competences of the Authority
(Regulation (EU) No 1093/2010 of 
the European Parliament and of 
the Council)Objectives
(a)  improving the functioning of the internal market, including, in particular, a sound, effective and consistent level of 
regulation and supervision;
(b) ensuring the integrity, transparency, efficiency and orderly functioning of financial markets;
(c) strengthening international supervisory coordination;
(d) preventing regulatory arbitrage and promoting equal conditions of competition;
(e) ensuring the taking of credit and other risks are appropriately regulated and supervised;
(f) enhancing customer protection.
Tasks
(a)  to contribute to the establishment of high quality common regulatory and supervisory standards and practices;
(b) to contribute to the consistent application of legally binding Union acts;
(c) to stimulate and facilitate the delegation of tasks and responsibilities among competent authorities;
(d) to cooperate closely with the ESRB1;
(e) to organise and conduct peer review analyses of competent authorities;
(f) to monitor and assess market developments in the area of its competence;
(g) to undertake economic analyses of markets to inform the discharge of the Authority’s functions;
(h) to foster depositor and investor protection;
(i)  to contribute to the consistent and coherent functioning of colleges of supervisors, the monitoring, assessment 
and measurement of systemic risk, the development and coordination of recovery and resolution plans, providing 
a high level of protection to depositors and investors throughout the Union and developing methods for the 
resolution of failing financial institutions and an assessment of the need for appropriate financing instruments; 
(j) to fulfil any other specific tasks set out in this Regulation or in other legislative acts; 
(k) to publish on its website, and to update regularly, information relating to its field of activities; 
(l)  to take over, as appropriate, all existing and ongoing tasks from the Committee of European Banking Supervisors 
(CEBS).
1 European Systemic Risk Board.EBA’s competences and activities
46 Annexes Annex IIGovernance Board of Supervisors
Composed of the Chairperson, one representative per Member State (head of NSA2), Commission, ECB3, ESRB, EIOPA4 
and ESMA5.
Management Board
Composed of the Chairperson and six other members of the Board of Supervisors.
Chairperson
Appointed by Board of Supervisors.
Executive Director
Appointed by Board of Supervisors.
Board of Appeal
Joint body of the three ESAs.
External audit
European Court of Auditors.
Discharge authority
European Parliament.
Resources made available to 
the Authority in 2013 (2012)2013 budget (2012)
26,0 (20,7)  million euro
Including:
European Union subsidy: 10,4 (8,3)  million euro
Contributions from Member States: 15,2 (12,1)  million euro
Contributions from observers: 0,4 (0,3)  million euro 
Staff as at 31 December 2013 (2012)
93 temporary staff (68)
13 contract staff (12)
19 seconded national experts (14)
Products and services in 2012 − Public consultations on 23 draft regulatory and implementing technical standards, of which 16 on capital/own 
funds.
− Submission to the Commission of the first draft regulatory technical standards on capital requirements for central 
counterparties under European market infrastructure regulation. 
− Issuance of six guidelines, four discussion papers and 14 consultation papers.
− Provision of seven opinions addressed to the Commission, European Parliament and Council, three comment let ‑
ters on accounting issues to the IASB/IFRS Foundation and one comment letter on auditing issues to the IAASB.
− Follow up to the EBA’s July 2011 EU ‑wide stress test recommendation and EBA’s December 2011 recapitalisation 
recommendation with implementation to be done by 30 June 2012 (monitoring of banks’ capital plans, publica ‑
tion of individual data on capital positions of 61 banks).
2 National supervisory authority.
3 European Central Bank.
4 European Insurance and Occupational Pensions Authority.
5 European Securities and Markets Authority.
47 Annexes Annex II− Work in relation to the colleges of supervisors focusing on improving the consistency of supervisory practices, 
better coordination of activities, and the articulation of joint decisions on institution ‑specific prudential require ‑
ments, with specific focus on the 40 largest EU cross ‑border banks.
− Participation in 116 meetings and activities of colleges. 
− Development of the EBA Crisis Management Manual for managing emergency situations, addressing information 
exchange within the colleges and with the EBA in emergency situations.
− Development of the good practices paper on consistency in the content and articulation of joint decisions.
− Issuance of a number of expert reports (e.g. report on a review of the prudential framework for SME lending, 
report on Basel III/CRD IV monitoring exercise, follow‑ up review aimed at assessing the disclosures banks made 
in response to the Pillar 3 requirements set out in the capital requirements directive, report on the functioning of 
colleges and fulfilment of action plans for colleges, etc.). 
− Performance of risk analysis, assessment and monitoring and presentation of risk reports to a wide range of 
stakeholders (including annual report to the EU Parliament, semi ‑annual and quarterly updates and reports, and 
weekly overview reporting on liquidity and funding conditions for European banks), strengthening risk assess ‑
ment and analysis infrastructure, including exploration of internal and external data.
− Input and contribution to the process of the review of the European System of Financial Supervision in the context 
of Article 81 of the EBA regulation, jointly with ESMA and EIOPA (provision of quantitative and qualitative data and 
self‑assessment report to the Commission).
− Contribution to the EU Financial Sector Assessment Programme of the International Monetary Fund.
− Work related to Euribor and benchmark ‑related issues, performed jointly with ESMA, including issuance of recom ‑
mendations to the Euribor ‑EBF and national authorities and work on principles for benchmark ‑setting processes.
− Surveys of national competent authorities with regard to national regulations on professional indemnity insur ‑
ance, and with regard to responsible lending and treatment of borrowers in payment difficulties, publication of 
the Consumer Trends Report 2012.
− Organisation of the EBA Consumer Protection Day in October 2012.
− Creation of the Standing Committee on Consumer Protection and Financial Innovation (SCConFin) and its sub ‑
groups working on responsible lending and arrears handling; exchange traded funds; and contracts for difference.
− Delivery and coordination of 13 seminars to staff from EBA and national supervisory authorities.
− Establishment of a set of key performance indicators for the finance area, reporting to the EBA’s Management 
Board on a regular basis.
− Further extension of an integrated e ‑HR system (Allegro) to facilitate an efficient and transparent working 
environment.
− 11 meetings of Board of Supervisors (seven physical meetings, four teleconferences), eight meetings of Manage ‑
ment Board (six physical meetings, two teleconferences).
− Approximately 180 meetings held by EBA internal committees/groups/task forces/panels.
Source:  Information supplied by the Authority.
48 Annexes Annex IIIExpert Panel
 —Mr Dirk Cupei, European Forum of Deposit Insurers and Association of 
German Banks
 —Mr Farid Aliyev, European Consumer Organisation
 —Mr Karel Lannoo, Centre for European Policy Studies
 —Mr Nicolas Véron, Bruegel Institute and Peterson Institute for International 
Economics
 —Mr Peter Nyberg, Åbo Akademi, Finland
 —Ms Eva Hüpkes, Financial Stability Board
49 Annexes Annex IVLegislative initiatives selected for review
CRD II: Directive 2009/111/EC of the European Parliament and the Council of 
16 September 2009
CRD III: Directive 2010/76/EU of the European Parliament and the Council of 
24 November 2010
CRD IV: 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 pruden ‑
tial supervision of credit institutions and investment firms, amending Direc ‑
tive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC
CRR: 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
Crisis management framework: Proposal for a directive of the European 
Parliament and of the Council establishing a framework for the recovery and 
resolution of credit institutions and investment firms
Deposit guarantee schemes: Proposal for a Directive 2009/14/EC of the Euro ‑
pean Parliament and the Council of 11 March 2009
Financial conglomerates directive: Directive 2011/89/EU of the European Par ‑
liament and the Council of 16 November 2011
Review of the accounting directives: Proposal for a directive of the European 
Parliament and the Council of 25 November 2011
Review of transparency directive: Proposal for a directive of the European 
Parliament and the Council of 25 October 2011 COM(2011) 683 final.
50 Annexes Annex VResolution mechanisms and deposit insurance in the 
United States and Canada
US resolution mechanisms
The US resolution regime for banks is administered by the Federal Deposit 
Insurance Corporation, which is a federal agency. In the recent crisis it has 
resolved close to 500 banks, including relatively large ones such as Washing ‑
ton Mutual.
The Dodd‑Frank Act of 2010 extended the resolution authority of the Federal 
Deposit Insurance Corporation to systemically important bank holding com ‑
panies, affiliates of FDIC‑insured institutions and non‑bank financial institu ‑
tions such as insurance companies.
The Dodd‑Frank Act requires each systemically important financial institution 
to periodically submit to the FDIC and the Federal Reserve a resolution plan 
that must address the company’s plans for its rapid and orderly resolution 
under the U.S. Bankruptcy Code.
Troubled Asset Relief Programme (TARP)1
In 2009 the US supervisory agencies2 conducted a stress test to determine if 
the largest US financial institutions had sufficient capital buffers to withstand 
the recession and the financial market turmoil. The exercise was required of 
financial institutions with assets greater than 100 billion USD. The 19 banking 
organisations included in the exercise comprised the core of the US banking 
system, representing roughly two thirds of aggregate US bank holding com ‑
pany assets. Ten out of the 19 banks tested were found to be short of capital. 
Based on the adverse scenario covering the years 2009 and 2010, the stress 
test identified a total capital shortage of approximately 74,6 billion USD at 
these 10 financial institutions.
TARP served as a financial backstop. It was a US government programme of 
investments, loans and asset guarantees and purchases in and from a range 
of financial institutions to strengthen the financial sector. The US govern ‑
ment made capital available immediately through the TARP Capital Assis ‑
tance Programme to those institutions that were found to be short of capital 
based on the results of the stress test. Committing to the recapitalisation of 
all the main financial institutions restored investors’ confidence and allowed 
the individual financial institutions to raise sufficient capital in the private 
markets. Indeed, nine3 of the ten institutions identified by the stress tests as 
having insufficient capital were able to find sufficient capital in the markets 
and therefore did not require additional funding provided from TARP .1 This section refers to one part 
of the TARP which affected 
large institutions: the stress 
test (SCAP) and the Capital 
Assistance Program (CAP).
2 Board of Governors of the 
Federal Reserve System, Office 
of the Comptroller of the 
Currency and the Federal 
Deposit Insurance 
Corporation. The New York 
FED was very involved in the 
stress tests, with about 200 
staff.
3 Counting for 98 % of the 
identified capital shortage.
51 Annexes Annex VCanadian resolution mechanism
The Canada Deposit Insurance Corporation (CDIC) insures deposits of mem ‑
ber institutions and is the Canadian bank resolution authority. The premiums 
for the deposit guarantee scheme are paid regularly from banks on a risk ‑ 
based approach (risk on balance sheet of banks).
52 Annexes
A framework for the recovery and resolution of banks
The Financial Stability Board (FSB)1 published a paper on key attributes of ef ‑
fective resolution regimes for financial institutions in October 2011. This sets 
out the core elements that the FSB considers to be necessary for an effective 
resolution regime. The FSB states that resolution authorities can be decen ‑
tralised but in this case needs very strong cooperation and agreements. Fur ‑
thermore a resolution regime should have a clear mandate, be able to take 
quick decisions and be clear and transparent towards the participating banks.
Key attributes of effective resolution mechanisms
Resolution authority
Each jurisdiction should have a designated administrative authority or au ‑
thorities responsible for exercising the resolution powers over firms within 
the scope of the resolution regime (‘resolution authority’). Where there are 
multiple resolution authorities within a jurisdiction their respective man ‑
dates, roles and responsibilities should be clearly defined and coordinated.
Where different resolution authorities are in charge of resolving entities of 
the same group within a single jurisdiction, the resolution regime of that 
jurisdiction should identify a lead authority that coordinates the resolution of 
the legal entities within that jurisdiction.
The resolution authority should have operational independence consistent 
with its statutory responsibilities, transparent processes, sound governance 
and adequate resources and be subject to rigorous evaluation and account ‑
ability mechanisms to assess the effectiveness of any resolution measures. It 
should have the expertise, resources and operational capacity to implement 
resolution measures with respect to large and complex firms.
Resolution powers
The resolution regime should provide for timely and early entry into resolu ‑
tion before a firm is balance sheet insolvent and before all equity has been 
fully wiped out.1 The FSB is an international 
body that monitors and makes 
recommendations about the 
global financial system. It was 
established after the 2009 G20 
London summit  in April 2009 
as a successor to the Financial 
Stability Forum  (FSF). The 
Board includes all G20 major 
economies , FSF members, and 
the European Commission . It is 
based in Basel, Switzerland.Annex VI
53 Annexes
Funding of firms in resolution
Jurisdictions should have in place privately financed deposit insurance or 
resolution funds, or a funding mechanism for ex post  recovery from the in ‑
dustry of the costs of providing temporary financing to facilitate the resolu ‑
tion of the firm.
Source:  The Financial Stability Board: Key attributes of effective resolution regimes for financial 
institutions, October 2011.Annex VI
54 Annexes
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ing Union?’ , BRUEGEL, 2012.Annex VII
55 Annexes
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56
Executive summary
V
The Commission notes that the EBA is not respon ‑
sible for direct supervision of financial entities in 
the EU. The EBA was established with a view to 
improving the functioning of the internal market, 
in particular by ensuring a high, effective and 
consistent level of regulation and supervision. The 
Authority should protect public values such as the 
stability of the financial system, the transparency of 
markets and financial products, and the protection 
of depositors and investors. It should also prevent 
regulatory arbitrage and guarantee a level play ‑
ing field, and strengthen international supervisory 
coordination, for the benefit of the economy at 
large.
VI
The Commission would like to note that the EBA has 
been vested with a clear mandate and authority to 
take binding decisions in order to enhance supervi ‑
sory convergence, particularly in relation to binding 
mediation and investigations into alleged breaches 
of EU law. 
VIII
The Commission would like to note that the roles 
and responsibilities of the various actors are clearly 
defined in the underlying legislation. In some areas, 
further clarification may be useful. 
Introduction
15
The Commission considers that both the EBA’s and 
the ECB’s role are clearly set out in the relevant 
regulations. Both the SSM regulation (recitals 31 
and 32) and the amended EBA regulation (recital 4) 
underline that the establishment of the SSM shall 
not call into question the role and responsibilities of 
the EBA. In some areas (e.g. stress testing, super ‑
visory handbook) close cooperation between the 
Authority and the ECB will be particularly crucial.Reply of the  
Commission
Observations
25
The Commission notes that since 2010 it has put 
forward around 30 sets of rules to ensure all finan ‑
cial actors, products and markets are appropriately 
regulated and efficiently supervised. By doing so 
the Commission has proposed all the main legisla ‑
tion linked to the G20 commitments and beyond. 
These rules are the basic framework for all 28 
Member States of the EU and underpin a properly 
functioning single market for financial services.
33
The Commission acknowledges that a few public 
consultations needed to be carried out by both the 
Commission and the EBA within limited timeframes, 
which was however due to the particular urgency 
of the matters at stake. In some cases deadlines, 
e.g. set by the G20 commitments, needed to be 
respected which resulted in exceptionally shorter 
consultation periods.
34
The Commission is currently preparing an overall 
assessment of the measures taken.
Impact assessments are based on assumptions 
about the future. At the outbreak of the crisis it 
was difficult to isolate the regulatory impacts from 
other important factors, including the direct con ‑
sequences of the financial crisis (e.g. increased risk 
aversion, uncertain market conditions, exceptional 
monetary policy interventions and low interest 
rates). There was not clear counterfactual against 
which to quantify the expected impacts. Pre ‑crisis 
market conditions cannot serve as the relevant 
counterfactual as it is precisely the boom–bust 
experience which much of the financial reform 
agenda aims to avoid being repeated.
Reply of the Commission 57
These technical standards are the following: 
 — on information exchanges between home and 
host supervisors pursuant to Article 50 of Direc ‑
tive 2013/36/EU;
 — on passport notifications pursuant to Arti ‑
cles 35, 36 and 39 of Directive 2013/36/EU;
 — on joint decisions on capital and liquidity re ‑
quirements which have to be taken by college 
members pursuant to Article 113 of Directive 
2013/36/EU;
 — on the functioning of supervisory colleges pur ‑
suant to Article 116 of Directive 2013/36/EU.
50
Every year, a report is published by the EBA. This 
report identifies weaknesses and improvements in 
the functioning of supervisory colleges.
68
More and more consumer protection work is 
developed jointly by the ESAs in the context of 
the ‘Joint Committee’ structure. The ‘read ‑across’ 
technique has for instance been applied in the 
area of ‘complaints handling’ to ensure that similar 
rules exist for all three sectors (banking, securities, 
insurance) whilst taking into account sector ‑specific 
differences.
72
The Commission notes that consumer and investor 
protection is one of the statutory tasks assigned to 
the ESAs. While it is true that there is still limited 
scope for the authorities in taking legally binding 
decisions to ban certain products/activities (see 
Article 9(5) of the EBA regulation), the relevant 
scope is not limited to these powers. In addition, reforms were built on a clear overall 
strategy including international commitments 
(G20). Throughout the process the Commission 
aimed at developing the rules in a coherent man ‑
ner and checking consistency. Thus most legislative 
proposals have been accompanied by individual 
impact assessments. Most legislative acts adopted 
as part of the regulatory response to the crisis 
include (partly several) review clauses in order to 
reassess the impact at various stages. 
41
The EBA was established with a view to improving 
the functioning of the internal market, in particular 
by ensuring a high, effective and consistent level of 
regulation and supervisions. The Authority should 
protect public values such as the stability of the 
financial system, the transparency of markets and 
financial products, and the protection of deposi ‑
tors and investors. It should also prevent regulatory 
arbitrage and guarantee a level playing field, and 
strengthen international supervisory coordination, 
for the benefit of the economy at large.
49
The Commission notes that the role of EBA in super ‑
visory colleges is de facto  limited but would like to 
highlight the following: 
 — Progress in the functioning of supervisory col ‑
leges has been made since 2011 (see the annual 
review on the functioning of supervisory col ‑
leges conducted by the EBA). 
 — As a consequence of the adoption of the SSM 
package the EBA also has the right to convene 
meetings of the college.
 — Several technical standards developed by the 
EBA are expected to be adopted in 2014. The 
implementation of these standards will greatly 
help to harmonise practices in supervisory 
colleges.
Reply of the Commission 58
Recommendation 1 — Second bullet
The Commission accepts and notes that unless justi ‑
fied for reasons of urgency the Commission strictly 
follows its best practice guidelines in relation to the 
duration of public consultation.
Recommendation 1 — Third bullet
The Commission accepts and notes that it is cur ‑
rently carrying out a cross ‑sectoral analysis examin ‑
ing the measures of the regulatory package. 
84
Because of the huge regulatory agenda EBA has 
focused its work on this aspect to the detriment of 
its mandate in terms of enhancing supervisory con ‑
vergence. The Commission expects this to change 
in the mid ‑term. The Commission also notes that 
EBA has both the authority and the legal mandate 
on supervisory convergence and to resolve disputes 
between NSAs.
Recommendation 3 — First bullet
The Commission accepts this recommendation and 
notes that the EBA’s role in stress testing has been 
strengthened as part of the overall SSM package.
Recommendation 3 — Second bullet
The Commission accepts and would like to point to 
the recently agreed BRR directive which provides 
for a European resolution framework. There has 
been a political agreement on a Single Resolu ‑
tion Mechanism (SRM) including a Single Resolu ‑
tion Board and a Single Resolution Fund for the 
euro area which however still need to be formally 
adopted. The design of one or more potential back ‑
stops in the context of the SRM will be discussed 
alongside.EBA is, for instance, entitled to issue guidelines on 
its own initiative in compliance with Article 16 of 
the EBA regulation and does not need a specific 
empowerment in sectoral legislation.
79
The Commission considers that the role and man ‑
date of the EBA is solidly defined in the founding 
regulation and cannot be put into question by 
memoranda of understanding concluded between 
the ECB and authorities non ‑participating Member 
States.
Conclusions and recommendations
82
The objective of implementing a fully ‑fledged 
banking union does not call into question the 
existence of EBA, which has a fundamental role in 
preserving the single market.
83
A cross ‑sectoral assessment measuring the impacts 
of the regulatory agenda in response to the finan ‑
cial crisis is currently prepared by the Commission.
Recommendation 1 — First bullet
The Commission accepts the recommendation to 
provide sufficient time for EBA to develop technical 
standards and notes that the following aspects have 
already been implemented: in its legislative pro ‑
posals the Commission is committed to provide for 
deadlines on empowerments for technical stand ‑
ards which are relative to the entry into force of the 
relevant basic act (in general 12 months, 6 months 
as a minimum). Important to note that deadlines 
are ultimately set by the co ‑legislators. The rest of 
the recommendation is addressed to the Parliament 
and the Council.
Reply of the Commission 59
In addition the SSM regulation (recital 31) provides 
for a clear cooperation requirement by the ECB with 
the ESAs. 
Recommendation 6 — First bullet
The Commission accepts this recommendation and 
would like to note that roles of the actors men ‑
tioned are clearly spelt out in the underlying legisla ‑
tive texts, but that further clarity is needed on the 
details of their cooperation and the implementa ‑
tion. The SSM regulation provides for the conclu ‑
sion of MoU between e.g. the ECB and NSAs from 
non ‑participating Member States.
Recommendation 6 — Second bullet
The Commission accepts and notes that the ECB 
has already adopted a decision on the cooperation 
and coordination of work between the ECB and the 
NSAs.
Recommendation 6 — Third bullet
The Commission accepts and notes that this request 
is reflected in the SSM regulation (recital 31).87
The Commission accepts and notes that consumer 
and investor protection is one of the statutory tasks 
assigned to EBA. While it is true that there is still 
limited scope for the authorities in taking legally 
binding decisions to ban certain products/activities 
(see Article 9(5) of the EBA regulation), the relevant 
scope is not limited to these powers. 
88
In the Commission’s view more use could be made 
of the Joint Committee of the ESAs in the field of 
consumer protection. Even if this adds a level of 
complexity, it ensures coordination and enhances 
consistency of consumer protection. 
Recommendation 4 
For its part, the Commission accepts this recom ‑
mendation and would like to note that the estab ‑
lishment and regular meetings of the Joint Com ‑
mittee have facilitated and improved the exchange 
of views across sectors on consumer protection 
issues. The Joint Committee should have a core role 
in this area. Consumer protection has also been at 
the heart of numerous legislative proposals recently 
put forward by the Commission (e.g. bank account 
proposal, PRIPS, IMD, etc.). The mortgage credit 
directive has recently been adopted and a political 
agreement was reached on MiFIDII.
90
The amended EBA regulation (recital 4) and the SSM 
regulation (recital 32) underline the objective that 
the conferral of supervisory tasks on the ECB should 
not call into question the role and existing powers 
and tasks of the EBA. Important to bear in mind that 
the EBA is not a supervisor itself.
Further thought could be given on how to make the 
EBA binding decision ‑making powers (e.g. on bind ‑
ing mediation, breach of Union law) more effective. 
This issue will be addressed in the Commission’s 
upcoming report on the ESFS review.
60
V
The EBA underlines that any significant improve ‑
ments in the EBA’s impact on the supervisory con ‑
vergence in the EU would require a change of the 
EBA’s mandate in primary legislation. Despite the 
constraints to the EBA’s powers, significant progress 
has been made by the EBA in improving the cross ‑
border supervision of banks and in the functioning 
of colleges of supervisors.
VI
The EBA points out that despite the narrow legal 
powers (e.g. absence of power to initiate binding 
mediation), and limited requests for mediation from 
the national competent authorities, the EBA has 
successfully conducted non ‑binding and binding 
mediation in eight cases, all concluded with mutu ‑
ally agreeable solutions. 
The EBA highlights that strengthening the reliability 
of the stress tests across the EU requires a change of 
the EBA’s mandate in the primary legislation. Under 
current rules, the EBA’s role is limited to ‘initiat ‑
ing and coordinating’ stress tests, while the legal 
responsibility for conducting the stress test and the 
contacts with the participating banks remains in 
the remit of the competent authorities. This leaves 
the EBA with a major responsibility and reputational 
risk, without any real control on the results of the 
stress test.
VIII
The EBA does not consider memoranda of under ‑
standing as appropriate instruments for clarifica ‑
tion of roles and responsibilities between the EBA, 
the European Central Bank (ECB) and the national 
competent authorities, and considers that any such 
clarification can only take place via changes at the 
level of primary legislation.Executive summary
III
The EBA firmly believes it has managed to fulfil 
its objectives within the constraints imposed on 
the EBA’s regulatory and supervisory powers and 
competences. The EBA considers that the limits in 
protecting financial stability in the EU originated 
from deficiencies in the institutional design of the 
monetary union, in particular the absence of an 
integrated system of supervision and a common 
financial safety net, and not from shortcomings 
in the accomplishment of tasks by the EBA. These 
deficiencies are now being addressed by the Bank ‑
ing Union. 
Furthermore, as regards the consumer protection, 
the EBA’s mandate in this area is constrained by 
a number of limitations, in particular (i) no legisla ‑
tion on consumer protection was brought into 
the EBA’s scope of action in its founding regula ‑
tion; (ii) the EBA did not receive any consumer 
protection mandate through EU directives in 2011, 
2012 or 2013; and (iii) the scope of financial institu ‑
tions to whom the EBA can address its instruments 
is limited and does not include all financial institu ‑
tions relevant for consumer protection.
IV
The EBA notes that it has not been involved in the 
preparation of EU primary banking legislation, and 
has had no influence on the EBA’s mandates and 
deadlines contained in the legislation. 
The EBA is fully committed to respecting due pro ‑
cesses of public consultation of its products, includ ‑
ing the involvement of its Banking Stakeholder 
Group. A few cases of deviation from the EBA’s best 
practice as regards the length of the public consul ‑
tation were a result of the commitment to complete 
the mandates on time and within the deadlines set 
externally by legislators, in order to give certainty 
to financial market participants.Reply of the European  
Banking Authority
Reply of the European Banking Authority 61
43
The EBA’s role on mediation is constrained by leg ‑
islation. The EBA cannot initiate binding mediation, 
unless a specific mandate is provided for in the pri ‑
mary legislation. Furthermore, there is legal uncer ‑
tainty as to whether EBA can intervene in areas 
in which a supervisory judgment of competent 
authorities diverges — some argue that the EBA 
can override decisions of national authorities only 
in cases in which the latter breached European law. 
Despite the limited powers and limited requests for 
mediation from the national competent authorities, 
the EBA has successfully performed its non ‑binding 
and binding mediation role in eight cases of media ‑
tion (this includes two cases that occurred in the 
conciliation phase of a binding mediation request, 
five non ‑binding mediation cases, and one infor ‑
mal mediation case), and has facilitated mutually 
agreeable solutions in all of the cases (four cases 
were concluded by formal, albeit non ‑binding, 
agreements and four cases by consensual informal 
agreement).
Concerning the EBA’s role in stress testing, see the 
EBA’s reply on the recommendation 3.
Common reply on the paragraphs 49, 
50, 51 and 52
See the EBA’s reply on the recommendation 2.
54
Two requests for binding mediation were received 
by the EBA from a national competent authority in 
the first quarter 2014.
55
Although the EBA does not have a legal basis to 
initiate binding mediation and has received only 
two requests for binding mediation from a national 
competent authority in the first quarter 2014, the 
EBA has nevertheless intervened to oversee eight 
cases of mediation (see also the EBA’s reply to para ‑
graph 43).We consider that the respective tasks of the ECB in 
its supervisory role, and of the EBA are clear and 
entirely consistent with the ECB being a competent 
authority, like any other national competent author ‑
ity, when acting in that role. The EBA does not enter 
into memoranda of understanding with national 
competent authorities, as they directly participate 
in the EBA’s work and are represented in the EBA’s 
decision ‑making body, the Board of Supervisors. 
The EBA does not consider it appropriate to treat 
the ECB differently from other competent authori ‑
ties when it acts as a supervisor — while the EBA 
has entered into memoranda of understanding with 
the ECB as a monetary authority.
Introduction
Table 2: line on the single rulebook
The Table 2 (the line on the single rulebook) con ‑
tains data on the EBA’s regulatory products in 2012. 
In 2013, the EBA submitted 36 draft regulatory tech ‑
nical standards and 21 draft implementing technical 
standards to the European Commission for endorse ‑
ment, issued 2 guidelines, 4 recommendations, 
6 opinions and conducted 56 public consultations.
15
See the EBA’s reply on the recommendation 6.
Observations
Common reply on paragraphs 28 and 33
See the EBA’s reply on the recommendation 1.
Reply of the European Banking Authority 62
Concerning Dexia: In the context of the 2011 EU ‑
wide stress test, Dexia was assessed as one of the 
safer banks in Europe (ranked no 13 out of 91), but 
the EBA was, prior to the decision on private sector 
involvement in Greece, unable to mark down sover ‑
eign debt without conflicting with statements from 
the Council of the EU. Nonetheless, the transpar ‑
ency provided by the EBA at the end of the exercise 
clearly showed Dexia’s sovereign exposures and its 
weak capital position once these exposures were 
marked to market.
Concerning Bankia: in the EU ‑wide stress test 
(adverse scenario) Bankia’s Core Tier 1 ratio would 
fall to 5,4 % by the end of 2012, still above the 
required minimum threshold of 5 %. However, the 
EBA recommended that also banks above but close 
to the threshold strengthened their capital position. 
Moreover, the results were based on starting point 
data that had not been subject to an asset quality 
review, and which thus did not expose losses which 
were later discovered. 
Concerning SNS Bank: in the EU ‑wide stress tests, 
the Tier 1 capital ratio of SNS bank was 8.4 %, above 
the required minimum of 5 %, and would fall to 7 % 
at the end of 2012. However, this level was based on 
starting point data that had not been subject to an 
asset quality review and which only came to light 
two years later, highlighting the need for a rolling 
programme of stress tests. The EBA also notices that 
the bank was forced into restructuring beyond the 
time horizon of the stress test.
Common reply on paragraphs 67 and 72
See the EBA’s reply to the recommendation 4.57
The EU ‑wide stress test provided an unprecedented 
level of transparency and disclosure on banks’ 
exposures and capital composition to allow market 
participants to develop an informed view on the 
resilience of the EU banking sector and was a key 
step in (i) improving public understanding and con ‑
fidence in EU banks and (ii) paving the way for the 
EBA 2012 recapitalisation recommendation. Market 
discipline could be further enhanced by regular 
and consistent disclosure of balance sheet data by 
banks, which could be more effectively facilitated if 
the EBA was given a strengthened legal mandate to 
publish banks’ data based on supervisory reporting.
Common reply on paragraphs 59, 60 
and 61
See the EBA’s reply to the recommendation 3.
Box 1
The EBA points out it did not have a mandate to 
either undertake an asset quality review ahead of 
the 2011 stress test (which would have identified 
problems in Bankia and possibly SNS Bank) nor 
to engage directly with banks to challenge their 
results, both of which were the responsibility of 
national competent authorities. 
The EBA takes note that the Box 1 mentions banks 
that dealt with problems, and have been eventually 
bailed out, after more than 1 year from the stress 
test and beyond the stress test horizon of 2011–12. 
Concerning the examples of banks, the EBA clarifies 
the following: 
Reply of the European Banking Authority 63
amount of regulatory standards, guidelines, rec ‑
ommendations, opinions and warnings, which has 
also been instrumental to improving the efficient 
functioning and the resilience of the single market. 
The EBA has sought to activate all the instruments 
and tools assigned to it in its founding regulation, 
also to protect the integrity of the single market. 
Furthermore, the EBA is keen to underline that this 
objective has been achieved within the limits of the 
EBA’s budget and resources, as well as within the 
constraints imposed on the EBA’s regulatory and 
supervisory powers and competences. It should be 
clear that the limits in protecting financial stability 
in the EU originated from deficiencies in the insti ‑
tutional design of the monetary union, in particular 
the absence of an integrated system of supervision 
and a common financial safety net, not from short ‑
comings in the accomplishment of the EBA’s tasks. 
These deficiencies are now being addressed by the 
Banking Union. See also the EBA’s replies on the 
recommendations 3 and 6.
83
See the EBA’s reply on the recommendation 1.
Recommendation 1
The EBA accepts the recommendation.
The EBA is fully committed to, and strictly respects, 
due processes of public consultation of its products, 
including the involvement of its Banking Stake ‑
holder Group. A few cases of deviation from the 
EBA’s best practice as regards the length of the pub ‑
lic consultation were a result of the EBA’s commit ‑
ment to complete the mandates on time and within 
the deadlines set externally by legislators. This 
followed the EBA’s objective of giving certainty to 
the financial market and its participants and of pro ‑
tecting the public interest. We note that within the 
audit period all the mandates remitted to the EBA 
were performed on time and within the required 
deadlines (with the exception of mandates under 
Article 78 of the CRD, for which new deadlines were 
agreed with the Commission beforehand).77
In order to strengthen the reliability of the EU ‑wide 
stress tests, the EBA highlights that a change of the 
EBA’s mandate in the primary legislation is neces ‑
sary (see the EBA’s reply on the recommendation 3).
The EBA notes that the establishment of the Sin ‑
gle Supervisory Mechanism will call for enhanced 
operational relationships with the ECB, in particular 
in relation to stress testing and development of the 
Single Supervisory Handbook. The EBA clarifies that 
according to the EBA’s legal mandate, the European 
supervisory handbook will represent a non ‑binding 
collection of supervisory best practice applied in 
the EU. The mandate does not allow the EBA to 
achieve maximum harmonisation of the best super ‑
visory practices across the EU, nor does it allow to 
substitute existing handbooks applied by compe ‑
tent authorities, such as the ECB.
79
See the EBA’s reply on the recommendations 2 and 6.
Conclusions and recommendations
82
The EBA firmly believes it has managed to fulfil its 
objective of protecting the public interest and of 
contributing to the stability and effectiveness of the 
financial system. The strengthening in the capital 
position of banks triggered by the EBA’s action has 
been impressive: EU banks raised 50 billion euro 
of capital before the completion of the EU ‑wide 
stress test, with a view to pass the test; the EBA’s 
recapitalisation recommendation forced all major 
EU banks to achieve a level of 9 % core tier 1 capital, 
well above the minimum requirements, taking also 
into account the risks in their sovereign portfolio; 
this led to a strengthening of more than 200 billion 
euro in the European bank capital ratios. The EBA 
contributed substantially to the single rulebook for 
financial institutions in the EU through an extensive 
Reply of the European Banking Authority 64
the EBA does not have a mandate to initiate bind ‑
ing mediation between competent authorities, and 
there is legal uncertainty as to whether the EBA 
can intervene in areas in which supervisory judge ‑
ment of the competent authorities diverges  — 
some argue that the EBA can override decisions of 
national authorities only in cases in which the latter 
breached European law; and the EBA’s mandate to 
develop the single supervisory handbook does not 
allow achieving maximum harmonisation of the 
best supervisory practices across the EU. 
Despite the above constraints on the EBA’s powers, 
significant progress has been made by the EBA in 
improving the functioning of colleges of supervi ‑
sors. Further, there has been a step change since 
the EBA’s establishment in 2011 as all colleges now 
undertake joint risk assessments and reach joint 
decisions. 
Specifically during 2013, the EBA closely monitored 
43 colleges, attending 93 physical meetings and 
joining 26 conference calls. Since 2011, the EBA has 
requested consolidated supervisors to convene 
colleges in order to discuss thematic and relevant 
topics (such as 2011 recapitalisation exercise, 
2011 and 2014 stress test exercises, and 2013 recom ‑
mendations on recovery plans, capital reservation 
and asset quality review), as well to discuss insti ‑
tution ‑specific or country ‑specific topics (such as 
macro ‑economic circumstances in home countries, 
emergency measures and crisis situations in banks). 
Also the EBA has requested that the consolidating 
supervisors include items in agendas to discuss spe ‑
cific topics, such as forbearance, emergency plans, 
conduct risks, and the EBA risk dashboard. The EBA 
has delivered annual internal reports on progress 
and areas for improvement in the functioning of 
colleges to the EBA’s Board of Supervisors, which 
has evidenced progress in the substantive discus ‑
sions on risks amongst the involved supervisors. The EBA notes that it has not been involved in the 
preparation of EU primary banking legislation, and 
has had no influence on the EBA’s mandates and 
deadlines contained in the legislation. Stronger 
involvement of the EBA in the legislative process, 
and a strengthened advisory role of the EBA to the 
Commission and the co ‑legislators would enable 
the EBA to fulfil optimally its role envisaged by 
the policymakers, as well as to fulfil its mandate as 
a guardian of the single rulebook. In practice, this 
could be achieved via (i) informal engagement by 
the Commission services before the publication 
of legislative proposals, (ii) a legal obligation for 
the EBA to be consulted on matters falling in the 
fields of interest of the EBA, as defined in the EBA 
founding regulation, and (iii) the requirement to 
flag to the attention of the Commission areas where 
differences in national rules and practices hamper 
the functioning of the single market and require 
legislative intervention. Such requirements could 
be accompanied by ongoing access to information 
on the development of the draft texts in the Council 
of the EU, and Trilogue discussions between the 
Council of the EU, the Parliament and the Commis ‑
sion, and favour prior discussion of the content and 
timelines of mandates remitted to the EBA.
85
See the EBA’s reply on the recommendation 2.
Recommendation 2
The EBA accepts the recommendation, but under ‑
lines that any significant improvements in the EBA’s 
impact on the supervisory convergence in the EU 
would require a change of the EBA’s mandate in pri ‑
mary legislation. The EBA has no power to convene 
colleges meetings, which stays within the remit of 
the consolidating supervisor, and the EBA does not 
participate in the decision ‑making of the colleges; 
Reply of the European Banking Authority 65
Considering the above, the EBA deems its role in 
stress testing should either be strengthened — by 
enabling the EBA to engage directly with banks, 
conduct peer analyses, challenge the banks’ results 
of the stress testing, and publish data on banks 
based on supervisory reporting on the EBA’s web ‑
site — or it should be radically reconsidered.
An option would be to redesign the EU ‑wide stress 
test as a disclosure and transparency exercise, with 
the EBA focusing on providing the tools for super ‑
visors to undertake their stress tests and acting as 
a transparency data hub for the EU ‑wide results. 
This would complement the supervisory stress tests 
run by competent authorities, replicating the frame ‑
work introduced in the US by the Dodd ‑Frank Act.
For any of these changes to be made, an underpin ‑
ning in the primary legislation would be required.
87
See the EBA’s reply on the recommendation 4.
The EBA clarifies that a recent amendment of the 
EBA’s internal Rules of Procedure have sought to 
overcome the legal shortcoming of insufficient 
representation of the national consumer protection 
authorities in the EBA’s decision ‑making processes. 
Namely, the EBA Board of Supervisors’ Rules of Pro ‑
cedure, as amended in November 2013 and as pub ‑
licly available on the EBA’s website, explicitly state 
the following (Article 2.4): ‘If a voting member does 
not bring a representative from a relevant national 
authority in accordance with Article 2(3), the voting 
member shall be responsible for coordinating with 
that national authority to ensure that the voting 
member is sufficiently informed on the item to be 
able to carry out his functions as such.’ The EBA has drawn up a code of conduct to ensure 
national measures are consulted ex ante , as well as 
a Home ‑Host Protocol to ensure that asset quality 
review and stress tests are discussed in colleges. 
Further, the EBA has developed a set of regulatory 
and implementing technical standards in the area 
of college functioning to be adopted in 2014 (RTS/
ITS on information exchanges between home and 
host supervisors, RTS/ITS on passport notifications, 
and ITS on joint decision on capital and liquidity 
requirements). Finally, the EBA has successfully 
performed its mediation role (within the limits of its 
mediation role as set out in its mandate) on eight 
occasions and has facilitated mutually agreeable 
solutions in all of the cases. 
The process through which the EBA staff provides 
feedback to the consolidated supervisor has been 
strengthened and formalised in 2013/4, also based 
on specific feedback from the EBA’s Board of 
Supervisors. The EBA has moved the IT platform to 
its own in ‑house system in 2014, which will enable 
it to have more control, and also be able to further 
promote the IT platform for the exchange of infor ‑
mation between competent authorities.
86
See the EBA’s reply on the recommendation 3.
Recommendation 3
The EBA accepts this recommendation, but high ‑
lights that strengthening the reliability of the stress 
tests across the EU requires a change of the EBA’s 
mandate in the primary legislation. We note that 
despite some clarification of the EBA’s role in the 
stress testing made in the EBA’s founding regulation 
in October 2013, the focus of the EBA’s role remains 
to initiate and coordinate stress tests rather than to 
undertake stress testing itself. The legal responsibil ‑
ity for the conduct of the stress testing exercise and 
the contacts with the participating banks remains 
in the remit of the competent supervisors, which 
leaves the EBA with a major responsibility and repu ‑
tational risk, without any real control on the results. 
Reply of the European Banking Authority 66
Within the above constraints, the EBA was none ‑
theless able to identify and address, through the 
non ‑binding legal instruments referred to above, 
a number of important and urgent issues in the 
banking market, such as responsible lending, treat ‑
ment of borrowers in arrears, complaints handling, 
risk management of exchange ‑traded funds, risks 
from contracts for difference, crowd funding, virtual 
currencies, and others.
Recommendation 5
The EBA accepts this recommendation, and notes 
it is in the process of implementing a performance 
management system. 
Recommendation 6
The EBA accepts this recommendation. The EBA 
does not consider memoranda of understanding 
as appropriate instruments for clarification of roles 
and responsibilities between the EBA, the ECB and 
the national competent authorities, and considers 
that any such clarification can only take place via 
changes at the level of primary legislation.
We consider that the respective tasks of the ECB in 
its supervisory role, and of the EBA are clear and 
entirely consistent with the ECB being a competent 
authority, like any other national competent author ‑
ity, when acting in that role. The EBA does not enter 
into memoranda of understanding with national 
competent authorities, as they directly participate 
in the EBA’s work and are represented in the EBA’s 
decision ‑making body, the Board of Supervisors. 
The EBA does not consider it is appropriate to treat 
the ECB differently from other competent authori ‑
ties when it acts as a supervisor — while the EBA 
has entered into memoranda of understanding with 
the ECB as a monetary authority.Recommendation 4
The EBA accepts the recommendation, but high ‑
lights that the EBA’s mandate in the area of con ‑
sumer protection in the EU financial sector is 
constrained by a number of limitations, and any 
significant improvements in the EBA’s impact in this 
area would require a change in primary legislation. 
No legislation on consumer protection was brought 
into the EBA’s scope of action in its founding regula ‑
tion. Furthermore, the EBA did not receive any con ‑
sumer protection mandate through EU directives in 
2011, 2012 or 2013. The first mandate was assigned 
to the EBA through the mortgage credit directive 
that was adopted in February 2014, and comprises 
a single technical standard. 
The EBA’s consumer protection work has therefore 
been restricted to own ‑initiative work, while the 
only legal instruments that are made available in 
the EBA’s founding regulation, and that the EBA can 
use to bring the own initiatives to bear on financial 
institutions and national competent authorities, 
were warnings, opinions, and guidelines, which are 
all legally non ‑binding instruments. Further, the 
scope of financial institutions to whom the EBA can 
address are limited to credit institutions, payments 
service providers that are credit institutions, and 
e‑money issuers. They do not include all financial 
institutions relevant for consumer protection, such 
as payment service providers that are not credit 
institutions, non ‑bank mortgage providers; or non ‑
bank credit providers. Last but not least, there is 
a very limited scope for the EBA to take legally bind ‑
ing decisions to ban certain products or activities, 
which is only allowed under specific circumstances 
(there has been no specific mandate given to the 
EBA in primary legislation, and no emergency situa ‑
tion has been declared by the Council).
Reply of the European Banking Authority 67
The EBA also notes that Regulation (EU) 
No 1024/2013 contains specific provisions requiring 
the establishment of memoranda of understanding 
with competent authorities of non ‑participating 
countries, and with securities supervisors, but 
contains no provisions suggesting a need for such 
arrangements with the ECB. 
The EBA notes that the establishment of the SSM 
will call for enhanced operational relationships with 
the ECB, namely in relation to stress testing and 
development of the Single Handbook. Concerning 
the European Supervisory Handbook, the EBA clari ‑
fies that according to the EBA’s legal mandate, the 
EBA’s handbook will represent a non ‑binding col ‑
lection of supervisory best practice applied in the 
EU. The mandate does not allow the EBA to achieve 
maximum harmonisation of the best supervisory 
practices across the EU, nor does it allow to sub ‑
stitute existing handbooks applied by competent 
authorities, such as the ECB.  Article 8 of the EBA founding regulation sets out the 
EBA’s principal tasks, such as setting high quality 
supervisory standards and practices, and the pow ‑
ers available to us to achieve those tasks, such as 
the development of technical standards and guide ‑
lines and recommendations. The role of compe ‑
tent authorities is primarily set out in sectoral acts 
specifying the scope of supervision and the powers 
to be used. In the case of the ECB, Article 4(2)(a) of 
the EBA founding regulation has been amended 
by Regulation (EU) No 1022/2013 to include the 
ECB as a competent authority for the purposes of 
the EBA’s tasks and powers ‘with regard to mat ‑
ters relating to tasks conferred on it by Regulation 
(EU) No 1024/2013’. Recital 12 of Regulation (EU) No 
1022/2013 provides that the EBA ‘should be able 
to carry out its tasks also in relation to the ECB in 
the same manner as in relation to the other com ‑
petent authorities’. Furthermore, Regulation (EU) 
No 1024/2013 makes clear in Articles 3 and 4 the 
scope of the tasks conferred on the ECB, that those 
tasks are without prejudice to the competence and 
tasks of the EBA, and that the ECB, like other com ‑
petent authorities, must cooperate with the EBA 
and must comply with Union law, including techni ‑
cal standards and Article 16 of the EBA regulation in 
relation to guidelines and recommendations.

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QJ‑AB‑14‑009‑EN‑C ISSN  1831 ‑0834
In the aftermath of the financial crisis, the Commission took steps 
to stabilise the banking sector by seeking to strengthen the 
regulatory and supervisory framework, and by setting up the 
European Banking Authority (EBA). The Court’s first audit in this 
area assessed whether the Commission and EBA had satisfactorily 
carried out their responsibilities in setting up the new 
arrangements for the regulation and supervision of the banking 
sector and considered what lessons could be learned for banking 
supervision under the new Single Supervisory Mechanism. The 
Court concluded that the Commission’s actions, including the 
creation of EBA, were important first steps in response to the 
financial crisis. However, there were some shortcomings identified 
in the functioning of new arrangements in respect of cross-border 
banking supervision, the assessment of the resilience of EU banks 
and promotion of consumer protection for which the Court makes 
recommendations.
EUROPEAN
COURT
OF AUDITORS