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5th Dec 2022

ECB watchdog to open first investigations

  • Daniele Nouy - Greek banks can 'withstand' current turmoil (Photo: Hannelore Foerster)

The European Central Bank’s (ECB) new watchdog body is launching its first investigations into the actions of the EU’s largest lenders.

Presenting the first annual report of the ECB’s Single Supervisory Mechanism (SSM) on Tuesday (31 March), chairwoman Daniele Nouy said it would open investigations into three “significant” banks for breaching EU law.

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A total of 11 alleged breaches were reported to the SSM in the past four months, with three “appropriate for follow-up”, according to the report published Tuesday.

Nouy added that the watchdog would be “keeping an eye on aggressive 'search-for-yield' strategies with a view to identifying lax credit standards”.

She warned the ECB is also monitoring the banks of crisis-hit countries as they are "more prone to corporate defaults".

She added: "We will be a tough supervisor but ... will strive to be fair".

The SSM was created at the start of 2014 but formally assumed its new role as the chief supervisor of EU banks last November, in what was considered to be a milestone in the creation of the bloc's "Banking Union".

It supervises the eurozone’s 130 largest financial institutions.

Like the EU competition authorities, it has the power to fine banks up to 10 percent of annual turnover. Crucially, it can demand lenders put away more capital to protect themselves against losses in the event of a banking crisis.

Twenty five EU-based lenders failed the ECB’s audit of its 130 largest banks last autumn aimed at assessing whether banks would have the capital to withstand future crises.

The banks which failed were said to have combined capital shortfalls of €24.6 billion.

Meanwhile, speaking at a European Parliament hearing on Tuesday, Nouy played down the extent of the cashflow crisis facing Greek banks, describing the country’s lenders as being in “a much better solvency situation than in previous years".

“In my view they have never been so well equipped to go through this political episode,” she said.

ECB takes control as EU bank supervisor

The ECB formally assumes its new role as the chief supervisor of EU banks on Tuesday, in a milestone for the creation of the bloc's banking union.

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