European Central Bank President Mario Draghi said Monday that the creation of an EU-wide banking supervisory authority would help restore confidence in crisis-wracked eurozone.
The so-called Single Supervisory Mechanism or SSM “will contribute to restoring confidence in the banking sector across the euro area,” Draghi told the European Parliament’s committee for economic and monetary affairs in a regular hearing.
Draghi said the agreement last week by EU leaders at their final summit this year to set up such a body meant that Europe, which has been battling a sovereign debt crisis for more than two years, can “end the year on a positive note.”
“This is a clear demonstration that European institutions are determined to act in a timely and decisive way to complete” economic and monetary union, he said.
“The establishment of the SSM can be expected to be a key turning point in the resolution of our current challenges,” Draghi said.
Under a complex deal hammered out following marathon talks, EU finance ministers agreed on the creation of a common supervisory authority in a key step towards a banking union which EU leaders hope will ring-fence banks in trouble to prevent future crises.
It will allow eurozone banks to be recapitalised directly, rather than through governments, so as to avoid adding to their growing debt burden.
The ECB will be entrusted with managing the supervisory system in tandem with the London-based European Banking Authority, which covers all 27 EU states, and national supervisors.
From March 2014, banks with assets worth more than 30 billion euros ($39 billion) or equal to 20 percent of a state’s economic output will come under the ECB’s remit.
The ECB will also have the right to intervene in cases involving smaller banks but it is expected that national supervisors will have the main responsibility in this category.
