Chair ECB-SSM: Update on the next SSM Chair
RegCORE Client Alert | Banking Union
The term of the current Chair of the ECB-SSM (the Chair) will come to an end at the end of 2023. The Chair of the European Central Bank’s (ECB) Supervisory Board heads the banking supervision tasks ascribed to the ECB since 2014, with the establishment of the Single Supervisory Mechanism (SSM). The power to approve and appoint the Chair and the Vice-Chair of the Supervisory Board is vested, respectively, in the European Parliament (the Parliament) and the Council of the European Union (the Council). Accordingly, this decision is to be taken on the basis of a – highly anticipated – open selection procedure.
As the race to replace current Chair Andrea Enria has not yet officially started, with an official vacancy notice published 17 May 2023 See here.Show Footnote, three key names have been floating around the last weeks: Claudia Buch, Margarita Delgado and Sharon Donnery. It is worth reminding at this point, the Chair is appointed for a non-renewable term of five years, with full respect to the institutional and voting arrangements set by the Treaties, in order to allow for an appropriate rotation and to ensure the full independence of the Chair.
Current Chair Enria has been acting as the head of the SSM since January 2018 having joined from the European Banking Authority which he headed between 2011 and 2018. During his steering of the SSM, he faced several significant challenges in European banking supervision. Most notably his tenure coincided with the outbreak of the COVID-19 pandemic, during which the SSM played a crucial role in coordinating measures (i.e., implementing regulatory relief measures) to support the economy and to ensure the stability of the European banking system as a whole. Enria also actively supported the idea of consolidation in the European banking sector, advocating for mergers and acquisition among banks in order to create stronger and more efficient institutions that could enhance the stability and competitiveness within the banking landscape in Europe.
Particularly, his efforts in the context of the reorganisation of the European banking supervision must be applauded, which involved changes to the structure and functioning of the SSM. One such change lead to the establishment of the Supervisory Board as a separate entity within the SSM itself. The Supervisory Board, chaired by Enria, thereby assumed responsibility for the overall strategic direction and decision-making of the SSM, including certain responsibilities which had hitherto been held by the ECB Governing Council.
Before looking into the institutional process behind the appointment of the new Chair, it is worth taking a closer look at the question as to who will become the next Chair, with a focus on the three names above.
Currently considered as the clear frontrunner for the race, Prof. Dr. Buch could count on the backing of the German government for the position. The main weakness of her application is potentially the relatively little experience in pure banking supervision, although her recent appointment at the SSM Board might certainly help in this regard. She has been the Vice-President of the Deutsche Bundesbank since 2014 and is responsible for overseeing financial stability, statistics, and audit departments as well as for accompanying the President of the Bundesbank to the Governing Council meetings at the European Central Bank. She is a member of the German Financial Stability Committee (Ausschuss für Finanzstabilität) as well as the Financial Stability Board (FSB) where she is representing the Bundesbank. Moreover, she holds the role of Deputy in the International monetary and Financial Committee (IMFC) of the International Monetary Fund and the Chair of the Irving Fisher Committee on Central Bank Statistics at the Bank of International Settlements.
Prof. Dr. Buch also chaired an important group at the FSB that was focused on assessing the Too-Big-To-Fail reforms – which were introduced in the aftermath of the global financial crisis – and analysing whether they are reducing the systemic and moral hazard risks associated with systematically important banks. On another note, she can also rely on a strong experience in academics and research where she focused and specialised on international finance and macroeconomics, international financial markets, financial integration, business cycle and employment volatility, international banking and foreign direct investment.
Since 2018 she has been Deputy Governor of the Bank of Spain. Further, in that capacity, she is a member of the Council of Spanish National Securities Market Commission and the chair of the Managing Committee of the Deposit Guarantee Scheme for Credit Institutions. She is the Vice-Chair of the Governing Committee of the Fund for the Orderly Restructuring of the Banking Sector. Notably, she is also a member of the Supervisory Board of the ECB-SSM as well as a member of the Board of Trustees and Chair of the Executive Commission of the Centro de Estudios Monetarios y Financieros (CEMFI). In addition, she can rely on a very strong experience in banking supervision, as she is a member of the SSM Board since 2018, she has been Deputy Director General of the SSM in DG Micro-Prudential Supervision I at the ECB between 2014 and 2018 and she held a major role in banking supervision in Banco de Espana between 1993 and 2014 from team leader for onsite inspection to Executive Coordinator and then Director of the banking supervision department. Notwithstanding, her chances might be limited by the fact that Spain already has one ECB Vice President seat, held by Luis De Guindos.
On 1 July 2022 she was appointed deputy Governor, Financial Regulation at the Central Bank of Ireland. She is an ex-officio member of the European Central Bank Commission and is a member of the SSM. As Deputy Governor for Financial Regulation, she is responsible for leading credit institutions supervision, insurance supervision, policy and risk as well as for the prudential analytics and inspections directorates. She was previously Deputy Governor Central Banking from 1 March 2016 to 30 June 2022 and was the Governor’s alternate on the Governing Council of the ECB. Furthermore, she is also a member of the General Board of the European Systemic Risk Board (ESRB), having been appointed by the ECB Governing Council in December 2016. She was appointed as co-Chair of the Standing Committee on Supervisory and Regulatory Cooperation Open-ended Funds Working Group (OEFWG) in January 2023. She had already, once before, ran for the SSM Chair position in 2018 but failed short to secure the position. To this end, she might also face the same issues in securing the position since top EU Financial Services positions are held by a significant number of Irish nationals: Commissioner McGuinness, Philip Lane at the ECB and Sean Berrigan at the head of DG FISMA.
What is the institutional process?
As a first step, namely pre-selection, the ECB’s Governing Council will set up a pre-selection committee to assess the applications against the criteria contained in the vacancy notice which is expected, as stated above, at the end of summer. On the basis of its assessment of the submitted applications, the most suitable candidates will be interviewed by the pre-selection committee and will participate in a leadership assessment by an external provider. The pre-selection committee will submit shortlist of suitable candidates and an assessment report to the ECB’s Governing Council for consideration.
As a second step, the approving and appointing bodies – the European Parliament and the EU Council – will be informed. The ECB will inform the ECON committee of the European Parliament and the EU Council, of the composition of the pool of applicants for the position of Chair (including number of applications, mix of professional skills, gender and nationality balance etc.) and provide them with the shortlist of candidates as endorsed by the ECB’s Governing Council. The Supervisory Board will also be provided with the shortlist.
The third step involves the proposal of the ECB’s Governing Council and the approval of the European Parliament. Specifically, after hearing the Supervisory Board, the ECB’s Governing Council will submit, for approval to the European Parliament, a proposal for the appointment of the Chair selected from the shortlist prepared by the pre-selection committee, together with written explanations of the underlying considerations.
As a fourth and final step, the EU Council concludes the process with a definitive appointment. Following the European Parliament’s approval of the proposal of the ECB’s Governing Council, the EU Council will adopt an implementing decision to appoint the Chair. The EU Council will take this decision on the basis of a qualified majority without taking into account the votes of its members that are not from participating Member States.
Outlook and next steps
As the official race for the next Chair of the Supervisory Board is about to commence, European banking supervision is currently confronted with a number of challenges. Most recently, the European Court of Auditors has criticised the ECB-SSM for being too “lax” in supervising the euro area’s largest banks, accusing it of being insufficiently aggressive in pushing the euro area banks to reduce high levels of non-performing loans (NPLs). See our standalone Client Alert on that development.
Another major challenge lies in the continuing need for full completion of the Banking Union and thereby creating a more integrated and resilient banking system in the EU. However, the completion of the Banking Union, especially the establishment of a common European deposit insurance scheme (EDIS), currently remains pending and presents a challenge for further harmonization and risk-sharing across Member States (see also our recent contribution on the legislative proposals proposed for reforming the CMDI framework).
It remains to be seen how negotiations will develop, and how, if at all, the appointment of the new Chair can bring any fresh momentum to this yet incomplete strategic project in addition to setting the right tone on supervisory focus to be applied by ECB-SSM status. Nonetheless, with any of the three anticipated names presented above, the European banking sector would certainly be well-equipped as a Chief supervisor.
PwC Legal is assisting a number of financial services firms and market participants in forward planning for changes stemming from these developments. We have assembled a multi-disciplinary and multijurisdictional team of sector experts to support clients navigate challenges and seize opportunities as well as to proactively engage with their market stakeholders and regulators. Moreover, we have developed a number of RegTech and SupTech tools for supervised firms, including PwC Legal’s Rule Scanner solution for horizon scanning and risk mapping of all legislative and regulatory developments as well as sanctions and fines from over 750 stakeholders in over 170 jurisdictions impacting financial services firms and their business.
If you would like to discuss any of the developments mentioned above, or how they may affect your business more generally, please contact any of our key contacts or PwC Legal’s RegCORE Team via email@example.com or our website.