Robert Schuman Centre for Advanced Studies – EUI

Fiesole (Florence) – 22-23 May 2015

Conference on:

«European Banking Union: Democracy, Technocracy and the State of Integration»

“The European Banking Union: Institutional Features and

Accountability Implications” Sergio Fabbrini

Director, LUISS School of Government

Professor of Political Science and Jean Monnet Chair

and

Mattia Guidi, Post Doc, Luiss School of Government

Rome- Italy

© 2015 LUISS Guido Carli

1. Introduction

2. The road towards the European Banking Union (EBU)

3. The institutional structure of the EBU

4. The institutional logic of the EBU

5. The inter-institutional bargaining (SRM)

6. Institutional outcomes in the EBU

7. Dilemmas of accountability in the EBU

8. Conclusion

© 2015 LUISS Guido Carli

1. The EBU can be considered the most important integrative project after the single currency.

2. It is constituted by the Single Supervisory Mechanism (SSM, already entered into force) and the Single Resolution Mechanism (SRM, which will be operational from January 2016). A Deposit Guarantee scheme is still in the book.

3. It is a useful case study for testing the inter-institutional relations between intergovernmental supranational interests.

4. The argument: the EBU is institutionalizing a permanent tension between national governments and the Commission – with the ECB as strategic actor that benefits most from this tension.

5. There is limited space in the EBU for the EP – a feature that raises crucial dilemmas of accountability.

1. Introduction

© 2015 LUISS Guido Carli

1. The European Council (EC) of June and December 2012 started the process with the Four Presidents Report on breaking the nexus between banking and sovereign crisis: centralized supervisory authority in the ECB to be complemented by bank resolution. The Commission asked to transform the policy aims of the EC in legislative proposals:

2. SSM: relying on Art. 127 (6) TFEU (therefore to be adopted by the Council alone, under unanimity rule), Regulation 1024/2013 was passed in October 2013. It gives the ECB ultimate authority for supervision of “relevant” banks.

3. SRM: relying on Art. 114 TFEU, Council and EP Regulation 806/2014 was adopted in July 2014, after the Bank Recovery and Resolution Directive (BRRD) and the Intergovernmental Agreement (IGA) signed in May 2014.

4. Potential tension with the already established European System of Financial Supervision (ESFS) based on the EBA: all EU member states are included whereas the EBU is a Eurozone project.

2. The road towards the EBU

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2. The road towards the EBU

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1. SSM managed by a Supervisory Board composed of: (a) Chair and Vice-Chair of the Executive Board of the ECB (proposed by the ECB to the EP – the EP approves and the Council, by QM, appoints them); (b) four representatives of the ECB (appointed by the Governing Council of the ECB) c) one representative for each national competent authority.

2. SSM decision-making: decisions taken by a simple majority. In case of draw the chair has a casting vote. Qualified majority in specific cases. Decisions adopted unless the Governing Council of the ECB objects within 10 working days.

3. SRM managed by a Single Resolution Board (SRB), composed of: (a) Chair, Vice-Chair and four other members appointed by the Council from a shortlist proposed by the Commission and approved by the EP, (b) members of the national resolution authorities.

4. SRM procedure: assessment by SRB, resolution transmitted to the Commission. If the Commission wants to reject it or change it, the Council decides on this proposal under simple majority (Commission and Council have a “joint veto power”).

2.1. Institutional innovations 3. Institutional structure of the EBU

v

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Resolution scheme of the SRM

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1. The SSM represents a case of supra-nationalization, both in terms of competences (what the EU does) and in terms of decision-making process (who is in charge).

2. Given this shift, the decision-making process for its establishment has been rather smooth.

3. The only (relevant) limitation to the SSM is that, as requested by Germany, a large number of medium- and small-sized banks have been excluded from the ECB supervision.

4. Delegated tasks seen as mainly “technical” the ECB has managed to expand significantly its competences.

5. All decisions are taken within the ECB (no involvement of other EU institutions).

4. The institutional logic of the EBU: the SSM

© 2015 LUISS Guido Carli

1. The SRM has a more intergovernmental institutional structure, which reflects the higher saliency of the policy.

2. Legal and political problems prevented the SRM from being established with a single piece of legislation.

3. A directive for collecting national funds from banks was necessary to avoid that such a procedure looked like a EU taxation.

4. The transfer of national funds to the Single Resolution Fund (SRF) was requested by Germany to remain more in control of the way the SRF operates.

5. The delegated tasks are not merely technical: money can be transferred from some member states to others. Hence, the Commission and Council retain decision-making powers.

4. The institutional logic of the EBU: the SRM

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1. In both the SSM and the SRM, Germany’s role was decisive in reducing the potential degree of supranational integration of the two policy regimes.

2. In the SSM, Germany managed to exclude its powerful Sparkassen from direct ECB’s supervision.

3. In the SRM, Germany managed to take the transfer of funds to the SRF out of a EU regulation, adopting it through an Intergovernmental Treaty

4. Achieving two main goals: 1) Germany can veto any modification of the agreement; 2) a change of the SRM passed against German will would represent a “fundamental change of circumstances” that may allow Germany to withdraw from the agreement.

4.1 The role of Germany in “taming” the supranational character of the EBU

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1. In the first draft bill of the Commission, there were four “executive members” of the board, two of which were appointed by the Council from a short-list proposed by the Commission. One member was appointed by the Commission alone, another by the ECB alone. No involvement of the EP.

2. After the Council’s first reading, the “executive members” became five, all appointed by the Council from a short-list proposed by the Commission. Greater role for the Council. Still no involvement of the EP.

3. In the final reading, the “executive members” have become six, all appointed by the Council from a short-list proposed by the Commission and approved by the EP. The EP has managed to get a veto power on the submission of the short-list, which means that the submission of the short-list has become a shared responsibility of EP and Commission.

5. The inter- institutional bargaining (SRM): composition of the Single Resolution Board

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1. In the first draft bill of the Commission, the resolution procedure was initiated by the Commission (not necessarily acting after a proposed scheme submitted by the SRB) and implemented by the SRB. The Commission was the only decision-maker, with the SRB acting as an agent.

2. After the Council’s first reading, the resolution procedure had to be initiated by the SRB, with no role for the Commission. The Council could amend or veto the resolution scheme. The Council envisioned as the real decision-maker, with the SRB acting as an agent.

3. In the final reading, the resolution procedure is necessarily initiated by the SRB. The Commission can propose to amend or veto the resolution scheme, but only with the consent of the Council. The SRB has got much more decision-making power, since it has the power of initiative. Commission and Council have a veto power that is shared, thus more difficult to use. If they do not reach an agreement, the scheme proposed by the SRB is automatically approved.

5.1 The inter- institutional bargaining (SRM): the resolution procedure

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1. In the first draft bill of the Commission, the transfer of national funds to the SRF was included in the SRM Regulation. The transitional period, in which money must be taken from national “compartments” before the rest of the Fund can be used, is expected to last 10 years.

2. After its first reading, the Council proposed that the transfer of national funds to the SRF be established with an Inter-Governmental Agreement (IGA). The length of the transitional period was still 10 years. Member states acquire a veto power on the content of the agreement and on future changes.

3. The final reading of the Regulation does not include the part regarding the transfer of national funds to the SRF. In the IGA, the length of the transitional period has been reduced to 8 years.

4. The IGA will enter into force when ratified by SSM and SRM participants representing at least 90% of the aggregate of the weighted votes. As of today, only Latvia and Slovakia (4.91%) have ratified it.

5.3 The inter-institutional bargaining (SRM): Transfers to the SRF and the IGA

6. Institutional outcomes in the EBU (1)

1. EP Very limited role in the SSM (approval of 2 out of 25 members of the board). In the SRM, it approves a shortlist of candidates for the appointment of the six “executive members” (but does not appoint them).

2. Council Very limited role in the SSM (approval of 2 out of 25 members of the board). In the SRM: 1) it appoints the six “full-time members” (from a short list proposed by the Commission and approved by the EP); 2) acting after a Commission’s proposal, it can block or amend resolution schemes.

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6. Institutional outcomes in the EBU (2)

3. Commission No role in the SSM. In the SRM, it drafts a shortlist of candidates for the appointment of the six “full-time members” (but it does not appoint them). It can propose to the Council to reject or amend a resolution scheme submitted by the Single Resolution Board.

4. ECJ It has the right to review the legality of decisions taken by EU institutions and bodies established for the EBU. If a signatory party to the IGA wants to withdraw because it believes there has been a “fundamental change in circumstances”, it is the ECJ that verifies its existence.

5. National agencies Both in SSM and SRM, they become “subsidiaries” of EU agencies.

6. ECB It has acquired the banking supervision competence (SSM). No important formal competences in the SRM, but its consultation with the SRB is crucial.

© 2015 LUISS Guido Carli

1. Mix of supra-nationalism and intergovernmentalism: ECB in SSM, SRB in SRM, national governments in the IGA.

2. The IGA is outside the EU legal framework and “constrains” future modifications of EU legal acts.

3. The EBU has redistributive effects: for this reason, MS ensured greater control on the SRM. But how to make them accountable to their national parliaments?

4. As regards decision-making in the SRM, Commission and Council, after struggling for imposing their respective influence on it, agreed on giving more independence to the SRB. To whom should the SRB be accountable?

5. Accountability within the EBU and accountability in the larger EFSF: is technocratic complexity unaccountable?

7. Dilemmas of accountability in the EBU

B

1. The EBU is a formidable step in the integration process: however, more integration does not necessarily mean more supra-nationalization (Jean Monnet’s falsification)

2. The mixed decision-making regime emerging in the EBU raises crucial problems of accountability. Supranationalization is achieved by-passing the EP and the Commission. The main decisions are delegated to independent agencies (ECB and SRB).

3. The “institutional winner” in the EBU/SSM is the ECB and in the EBU/SRM are the MSs.

4. The dual legal system of the banking-sector policy (EBU and ESFS) can make problematic the coordination between Euro and non-Euro areas – increasing the accountability deficit of both. Which European Union is taking shape?

7. Conclusion

B

© 2015 LUISS Guido Carli