Banking Union

The banking union was established in 2014 as a key component of the EU’s economic and monetary union. The establishment of the banking union was a response to the financial crisis, and there has been significant progress in formulating common EU rules and putting in place a new European supervision and resolution structure (the Single Supervisory Mechanism (SSM) and the Single Resolution Mechanism (SRM)).

All euro area countries are part of the banking union. EU Member States outside the euro area may join the banking union if they begin working closely with the ECB.

One of the objectives of the European banking union is to achieve greater stability, security and transparency in the European banking sector, to unify supervision in the euro area, and to resolve failing or likely to fail banks without taxpayers’ money and with minimal impact on the real sector.

The European banking union consists of several mechanisms: the Single Supervisory Mechanism (SSM), the Single Resolution Mechanism (SRM) and the mechanism of the single deposit insurance scheme, which is under creation.

Legal basis for the functioning of the SSM

The legal basis for the SSM is the SSM Regulation (Regulation (EU) No 1024/2013). On the basis of this regulation the ECB took over direct supervision of banks in 20 participating EU Member States. Significant banks (SIs) are under the direct supervision of the ECB, while less significant banks (LSIs) remain subject to supervision at the national level. Banka Slovenije is responsible for supervising less significant banks in Slovenia, as part of its supervision of the banking system as the national competent authority.

Cooperation between the ECB and national competent authorities within the framework of the SSM

Banking supervision in the euro area is conducted on a decentralised basis under the leadership and responsibility of the ECB in close cooperation with the national competent authorities. This system ensures that banks in participating Member States are supervised according to unified criteria and methodologies, taking into account the principle of proportionality.

The detailed arrangements for cooperation between the ECB and the national competent authorities are set out by Regulation (EU) No 468/2014 of the European Central Bank establishing a framework for cooperation within the SSM between the ECB and national competent authorities and with national designated authorities (SSM Framework Regulation).

For more on the SSM, see the explainer and the Guide to banking supervision (pdf).

Banks in the euro area are divided into significant institutions (SIs) and less significant institutions (LSIs). Significant institutions are supervised directly by the ECB within the framework of the SSM. Less significant institutions come under the supervision of the national supervisory authorities, in line with the rules and methodology of the ECB and the SSM, and are only supervised indirectly by the ECB.

Supervision of the less significant institutions in Slovenia is conducted directly by Banka Slovenije, which is national competent authority for banking supervision. Like all the other national supervisors, Banka Slovenije regularly submits supervisory data for less significant institutions to the ECB, and briefs it on all supervisory findings.

The national competent authorities for supervision may consult the ECB on the imposition of measures, but the final decision is their responsibility, other than in exceptional cases. The new arrangements also allow the ECB to directly take over the supervision of less significant institutions at the proposal of the national supervisor, at its own initiative in the event of the potential occurrence of a systemic crisis, or if the national competent supervisor is failing to conduct adequate supervision.

Criteria for classification as a significant institution or group of credit institutions

The three largest banks at least in each euro area country are always classified as significant institutions. The ECB may additionally classify a credit institution as significant on the basis of significant cross-border activities. When a bank is classified as a significant institution, all its subsidiaries are also classified as significant institutions. A bank is also classified as a significant institution if it has received direct funding from the European Financial Stability Facility or the European Stability Mechanism.

Criteria:

• the bank’s total assets are in excess of EUR 30 billion or 20% of national GDP (unless total assets are below EUR 5 billion),

• the bank is among the three biggest banks in the country,

• the bank has received funding from the European Stability Mechanism,

• the bank’s total assets are in excess of EUR 5 billion and the ratio of its cross-border assets/liabilities in more than one other participating Member State to its total assets/liabilities is above 20%.

This classification is reviewed each year by the ECB.

Currently there are 109 bank groups that are classified as significant and are supervised directly by the ECB.

The following are classified as significant institutions (including their subsidiary banks) in Slovenia:

• Nova Ljubljanska banka d.d., Ljubljana

• OTP banka d.d.

• UniCredit Banka Slovenija d.d.

• Banka Intesa Sanpaolo d.d.

• Banka Sparkasse d.d.

• Addiko Bank d.d.

• Gorenjska banka d.d.

The less significant institutions are:

• Deželna banka Slovenije d.d.

• Delavska hranilnica d.d.

• Hranilnica Lon d.d.

• Primorska hranilnica Vipava d.d.

• SID Slovenska izvozna in razvojna banka d.d.*

^{Note: * SID has special status as a bank specialising in promotion of exports and development. Supervision is conducted by Banka Slovenije.}

Supervision of significant institutions and functioning of Joint Supervisory Teams

The ECB takes all binding supervisory decisions for significant credit institutions and groups of credit institutions in accordance with the relevant legislation. Inside the ECB there are several general directorates that are responsible for supervising significant institutions and groups of credit institutions with regard to their size. The organigram of banking supervision inside the ECB can be found on this link.

In operational terms supervision of significant institutions is conducted via the joint supervisory teams (JSTs). Each team consists of supervisors employed at the ECB and at the national supervisory authorities. The national supervisory authorities (Banka Slovenije in Slovenia’s case) participate in all supervisory activities, while supervisory decisions with regard to these banks are made by the ECB.

Each team is headed by a JST coordinator from the ECB. The JST coordinator is responsible for carrying out the relevant supervisory tasks in line with the annual supervisory examination programme (SEP). The coordinator is the contact point for credit institutions and coordinates activities within the JST, assigns tasks to individual team members and organises JST meetings or conference calls. More details about the composition and functioning of JSTs can be found on this link.

Alongside the JST coordinator, there is a sub-coordinator for each significant institution who is employed at the national supervisory authority, Banka Slovenije in Slovenia’s case. The sub-coordinators support the JST coordinator in ongoing supervision, and also introduce the perspective of the national supervisory authorities. In the larger JSTs, the coordinator and all the national sub-coordinators form a core JST.

Individual team members are responsible for individual risk areas. All team members work closely with the JST coordinator and with one another on their daily work tasks, and consult one another with regard to the special steps that need to be taken in all phases of supervisory procedures. Team members draw up draft decisions, regarding which positions are then unified on the JST. The draft decisions are then submitted to the relevant decision-making bodies at the ECB. The organisational and decision-making structure at the ECB is presented in detail on this link.

Legislation providing the basis for supervision

In conducting supervision of significant credit institutions or groups of credit institutions, the ECB and the national supervisory authorities apply the relevant provisions of EU law. In addition to directives and regulations, EU law includes binding regulatory and implementing technical standards drawn up by the European Banking Authority (EBA) and adopted by the European Commission.

When EU law exists in the form of directives (e.g. the CRD IV), the ECB applies the national legislation that transposes the directives; this is the Banking Act (ZBan-3) in Slovenia’s case. When the relevant EU legislation exists in the form of regulations (e.g. the CRR) that explicitly grants Member States discretions under these regulations, in conducting supervision the ECB applies the national legislation in which these discretions are exercised.

Enhanced role of national supervisory authorities in supervision of significant credit institutions

The role of national supervisory authorities is enhanced in special procedures. These procedures address areas such as the fit and proper assessment of members of management and supervisory bodies (joint procedures), and procedures in connection with the freedom to provide services and freedom of establishment (passporting). In such cases the application or notification is submitted to the national supervisory authorities, who draw up a draft decision. The ECB reviews the draft decision, and then makes a decision.

Supervision of less significant institutions

Supervision of less significant institutions is conducted directly by the national supervisory authorities within the framework of the SSM, i.e. by Banka Slovenije in Slovenia’s case. Banka Slovenije independently implements all the same supervisory procedures and practices used by the ECB at significant institutions, and decides on the granting or withdrawal of authorisations and on the imposition of supervisory measures.

The ECB has an oversight function in the supervision of less significant institutions. The ECB must ensure convergence within the euro area with regard to the supervision of less significant institutions, and upholds the high supervisory standards of the SSM. To this end, the national competent authorities regularly make detailed reports on the identified risks, their supervisory procedures, and their supervisory measures. The nature, scope and timing of the reports differ with regard to the details of the case and the size and significance of the credit institution in question. This is set out in Articles 96 to 100 of the SSM Framework Regulation.

The ECB may issue regulations, guidance or general instructions to the national supervisory authorities to ensure the consistent application of high SSM supervisory standards, and in special cases may take over direct supervision of individual or multiple less significant institutions.

Banka Slovenije’s powers in conducting banking supervision within the framework of the SSM

SSM was established as a decentralised supervisory mechanism. It is based on cooperation between the ECB and national supervisory authorities. Banka Slovenije is the national supervisory authority in Slovenia responsible for supervising banks and savings banks, and thus contributes to the successful functioning of the SSM.

At Banka Slovenije:

• we directly conduct microprudential supervision of less significant credit institutions and report regularly to the ECB,

• Banka Slovenije staff use our knowledge of Slovenia’s legal framework and the local market to actively participate in the microprudential supervision of significant institutions as members of JSTs,

• we actively participate in and play an important role in common procedures,

• we conduct supervision that is not tied directly to individual institutions, but rather to the banking system as a whole (e.g. issuing circulars, minimum standards and guidelines),

• we independently conduct supervision of AML/CFT and supervision of consumer lending,

• we conduct supervision of restrictive measures,

• we conduct supervision of unauthorised banking services,

• we conduct macroprudential supervision,

• we decide on misdemeanours and sanctions.

Common procedures

Common procedures have been set out by the national supervisory authorities and the ECB for licensing and for the granting of authorisations to acquire qualifying holdings.

A standardised procedure applies to all credit institutions under the CRR, irrespective of whether they are significant or less significant. The ECB has sole responsibility for deciding on these issues, while the applications initiating the procedures are submitted to the national supervisory authorities. Banka Slovenije is the national supervisory authority in Slovenia. Banka Slovenije analyses applications of this kind and draws up a draft decision. The application, the draft decision and all accompanying documentation are then forwarded to the ECB for a decision.

Detailed information in connection with the common procedures with the ECB can be found in the section on Licensing and on the ECB website.