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Close Cooperation as Path to the Single Supervisory Mechanism

The Single Supervisory Mechanism (SSM) represents the system of banking supervision in the European Union which is conducted by the European Central Bank. It conducts supervision directly for significant credit institutions and indirectly for less significant credit institutions in the 18 member states whose currency is the euro. Countries from the euro area automatically participate in the SSM, while participation in the SSM for non-euro area countries is on the "opt-in" basis. Member state, whose currency is not the euro, may formally request for establishing the close cooperation between the European Central Bank and its national supervisory authority. Once close cooperation has been established, the member state whose currency is not euro will join the SSM. So far, no member state has established close cooperation with the ECB. Bulgaria and Croatia are the first two non-euro area member states which have submitted a formal request to establish the mutual cooperation with ECB. In this paper, the process of establishing close cooperation with the ECB will be in detail explained and illustrated. Benefits and disadvantages of the close cooperation will be presented and compared with the option of not participating in the SSM. Legal grounds for establishing the close cooperation will be presented in more detail. Difficulties that Croatia faces in the process of establishing close co-operation will be introduced. Considering the high level of internationalization of banking business in general and strong presence of foreign-owned banks in Croatian banking system, national regulator already has tight interaction with the European Central Bank, but it will be certainly fostered through the establishment of close cooperation. Participation in the SSM will provide national regulators inter alia to harmonize their supervisory practices on the supranational level and therefore is one of the cornerstones for completion of all three pillars in the banking union.

Single Supervisory Mechanism, banking supervision, close cooperation, supervisory authority, banking union

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