In the wake of the global financial crisis, European Union (EU) regulators advocated for a harmonized approach and application of a uniform set of prudential regulatory standards across the Union. In 2014, the EU adopted a pan-European supervisor regime for its banks, giving the European Central Bank (ECB) direct supervision over its member countries’ financial institutions. Under the Single Supervisory Mechanism (SSM), the ECB is tasked with directly supervising “significant” financial firms regarding prudential requirements. The hope is that this will ensure early detection of weaknesses and better preservation of financial stability.
The SSM framework allows national authorities to share in the supervisory role with the ECB under a mechanism called “joint supervisory teams.” National banking regulators of member-state countries remain in charge of all supervisory tasks falling outside the scope of the SSM.
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