sabine lautenschlager : national supervision in a european system – what is the new balance? speech ms sabine lautenschlager, member of the executive board of the european central bank, at the fifth fma ( austrian financial market authority ) supervisory conference, vienna, 30 september 2014. * * * mr ettl, mr kumpfmuller, ladies and gentlemen, nine months ago to the day, the finanzmarktaufsicht ( austrian financial market authority or fma ) issued two press releases announcing major “ restructuring measures ”. according to the fma, banking supervision in the euro area would be built on “ new foundations ” in 2014 and the year would bring new tasks and challenges. i really like the building site metaphor. it isn ’ t hard to imagine what the challenge of laying new foundations and constructing a new building – especially during regular operations – means. this event today is about national supervision in a european system and where the new balance lies. the focus is therefore on the stability of the european supervisory building. now, there are clear rules or conditions to be complied with when constructing a building. tasks and responsibilities must be clearly defined. everybody needs to know what to do or to leave alone – and that goes for the single supervisory mechanism ( ssm ), too. the european supervisory building, consisting of the ecb and 19 national supervisors, isn ’ t a single family home, but a large building complex ; a structure that should be sturdy and stable, even in stormy conditions. expectations of the developer european legislators and the public, too, expect the ssm to ensure a resistant, robust banking system in the euro area. supervision in europe is rightly expected to be better than what 19 national supervisors could achieve with national means. the new system of supervision should be neutral and not wedded to national thinking and traditions. it should, where appropriate, produce a level playing field. it had become apparent in the financial crisis that the difficulties of large, strongly interlinked banks were not just a national problem and that difficulties can spill over into the public sector and the real economy. the ssm is supposed to identify any risks that may endanger national financial markets or the european financial market as a whole at an early stage and take measures to counter them. it should be assertive and able to act. if it is set up properly, the ssm can indeed meet the majority of these expectations. a european supervisory body will be able to identify

in the euro area ) are home to the majority of less significant institutions. this makes austria our second largest “ customer ”, after germany, in the area of indirect supervision. at the same time, there are countries that have very few such institutions : cyprus, for example, will have seven such institutions in the ssm. what does indirect supervision mean? let me say a few words on what indirect supervision actually means. indirect supervision by the ecb consists of two elements, macro - prudential supervision and supervision of institutions and sectors. macro - prudential supervision aims to identify and address deficits, in particular by comparing or benchmarking the various supervisory systems and approaches, and to spread and enforce best practice approaches. institutional and sectoral supervision are about the institutions prioritising their levels of risk and the possible effects accordingly, thereby defining the intensity of the indirect supervision. depending on which “ class ” of intensity the bank is in, the content of the reports will change in agreement with the various national supervisors. for example, we ’ re currently working on the draft of a reporting guide for national supervisors. this guide should provide an overview of the information the ecb requires. after all, indirect supervision isn ’ t possible without information, unfortunately. the reporting guide will be an expression of the multi - stage supervisory approach. the reporting requirements are differentiated according to the prioritisation of the institution, the type of information to be provided and the reporting interval. for example, we will put into a high “ intensity class ” those institutions that may have considerable adverse effects on the financial system of their member state in the event of a crisis. for these banks, we will supervise the activity of the national supervisory authority more intensively. this way, the ssm can ensure high - quality supervision that follows uniform standards, even in individual cases, without subjecting each institution to an equally high intensity of supervision. this applies first to those institutions that, as a first step, were classified by national supervisory authorities as institutions that require particularly intensive supervision. in the not - too - distant future, however, there will be additional criteria, which will allow granular differentiation. i ’ m thinking here, for example, of institutions for which early warning indicators are sounding or banks that are growing large enough naturally to be regarded as significant banks through balance sheet growth or increasing interconnectedness. the consequence of the risk - oriented approach of institutional supervision is that the majority of the banks that, owing to their level