ECB [EU]

The European Central Bank (ECB)

Protocol (No 4) – statute of the European System of Central Banks and of the European Central Bank

It lays down the statute of the European System of Central Banks (ESCB) and of the European Central Bank (ECB).

Key Points

The ECB is the central bank of the euro area and is an independent European Union (EU) institution, representing the core of the Eurosystem, which conducts monetary policy in the euro area, and of the ESCB.

The Eurosystem consists of the ECB and the national central banks (NCBs) of the euro area countries, whereas the ESCB consists of the ECB and the NCBs of all EU countries. The Eurosystem and the ESCB will co-exist as long as there are EU countries outside the euro area.

The ECB’s primary objective is the maintenance of price stability, i.e. safeguarding the value of the euro. Without prejudice to its primary objective, it also supports the general economic policies in the EU.

The basic tasks of the ECB are to:
define and implement the monetary policy for the euro area;
conduct foreign exchange operations;
hold and manage the official foreign reserves of the euro area countries;
promote the smooth operation of payment systems.

In addition, the ECB collects statistical information for the performance of its tasks in cooperation with the NCBs and has the exclusive right to authorise the issue of euro banknotes within the EU.

Together with the national supervisors, the ECB also carries out banking supervision in the euro area and in other participating countries within the Single Supervisory Mechanism (SSM). It was assigned this responsibility in 2014 in order to contribute to the safety and soundness of credit institutions and to the stability of the financial system.

The ECB’s decision-making bodies are the Governing Council, the Executive Board and the General Council. The Governing Council, the main decision-making body, comprises the Executive Board members and the governors of the euro area NCBs. The Executive Board, responsible for monetary policy implementation and day-to-day operations, is composed of the President and the Vice-President and four other members. The General Council, which carries out tasks the ECB is required to perform until all EU countries have adopted the euro, comprises the President and Vice-President and the governors of the NCBs of the EU countries.

The Supervisory Board was established in the context of the SSM and carries out the tasks relating to banking supervision. It consists of the Chair, the Vice-Chair, four ECB representatives and one representative of each of the national supervisory authorities in the participating countries within the SSM.

The ECB was established in 1998 and is located in Frankfurt am Main, Germany.

Context

The European Central Bank, established on 1 June 1998, is a fully-fledged EU institution. In 2009, it was given legal personality (Article 282 (3) of the Treaty on the Functioning of the European Union).
For more information, see:
the ECB’s website
the ECB’s Banking supervision website.

MAIN DOCUMENT

Consolidated version of the Treaty on the Functioning of the European Union – Protocol (No 4) on the statute of the European System of Central Banks and of the European Central Bank (OJ C 202, 7.6.2016, pp. 230-250)

RELATED DOCUMENTS

Consolidated version of the Treaty on the Functioning of the European Union–Part Six – Institutional and financial provisions – Title I – Institutional provisions – Chapter 1 – The Institutions – Section 6 – The European Central Bank – Article 282 (OJ C 202, 7.6.2016, p. 167)

The European Central Bank’s role in supervising banks

Regulation (EU) No 1024/2013 – specific tasks of the European Central Bank concerning policies on the prudential supervision of credit institutions

The financial crisis demonstrated how problems can spread throughout the financial system and directly affect people’s lives. To strengthen oversight of the system, a Single Supervisory Mechanism (SSM) has been created to oversee banks in the euro area and other participating European Union (EU) countries.

It establishes the SSM as a new system to supervise banks in the euro area and other participating EU countries. The SSM consists of the European Central Bank (ECB) and national supervisory authorities.

It gives the ECB, in cooperation with the national supervisors, responsibility for the effective and consistent functioning of the SSM.

Key Points

The ECB does the following.

Directly supervises significant banks. A bank may be deemed as significant depending on its size, its importance to the domestic banking sector or whether it has been recapitalised by public funds. The ECB has the authority to:
conduct supervisory reviews, on-site inspections and investigations;
grant or withdraw banking licences;
assess a bank’s acquisition and disposal of qualifying holdings;
set higher capital requirements (‘buffers’) to counter current or future financial crises;
impose sanctions for any breach of EU law on credit institutions, financial holding companies* and mixed financial holding companies.

Indirectly supervises banks that are considered to be less significant and are directly supervised by their national supervisory authorities.

The ECB’s monetary policy and supervisory tasks are separated to avoid any conflict of interest between the two. Tough restrictions enforce the division; for example, by allowing for the exchange of sensitive information only when certain safeguards are observed.

National supervisors remain responsible for issues such as consumer protection, money laundering, payment services and the supervision of branches of banks in EU countries which are not part of the SSM.

The SSM is the first pillar of Europe’s banking union. The second is the Single Resolution Mechanism, which aims to deal quickly and efficiently with failing banks.

With the creation of the SSM, changes were made to the European banking authority’s (EBA) voting arrangements to ensure countries participating in the SSM would not unduly dominate the EBA’s board of supervisors.

Context

The creation of a truly European supervision mechanism weakens the link between banks and national sovereigns*. This indirectly helps to rebuild trust in Europe’s banking sector.

The recent financial crisis demonstrated how contagious problems in the financial sector of one country can be, especially in a monetary union, and how these problems can directly affect citizens across the euro area.

For more information, see financial stability on the European Central Bank’s website.

Following the COVID-19 outbreak and introducing measures to cope with the impact of the crisis, the European Commission adopted:

Recommendation of the European Central Bank of 27 March 2020 on dividend distributions during the COVID-19 pandemic and repealing Recommendation ECB/2020/1 (ECB/2020/19)

KEY TERMS

Financial holding company: a financial institution, the subsidiary undertakings of which are either exclusively or mainly credit institutions or financial institutions.

Mixed financial holding company: a parent undertaking, other than a regulated entity (i.e. a credit institution, an insurance undertaking or an investment firm), which together with its subsidiaries, at least one of which is a regulated entity that has its head office in the EU, and other entities, constitutes a financial conglomerate.

National sovereigns: national governments and their agencies.

ACT

Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions (OJ L 287, 29.10.2013, pp. 63-89)

RELATED ACTS

Regulation (EU) No 1022/2013 of the European Parliament and of the Council of 22 October 2013 amending Regulation (EU) No 1093/2010 establishing a European supervisory authority (European banking authority) as regards the conferral of specific tasks on the European Central Bank pursuant to Council Regulation (EU) No 1024/2013 (OJ L 287, 29.10.2013, pp. 5-14)

Regulation (EU) No 806/2014 of the European Parliament and of the Council of 15 July 2014 establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund and amending Regulation (EU) No 1093/2010 (OJ L 225 of 30.7.2014, pp. 1-90)

Powers of the ECB to impose sanctions

Regulation (EC) No 2532/98 – powers of the European Central Bank to impose sanctions

The European Central Bank (ECB) conducts the monetary policy of the euro area with the primary objective of maintaining price stability. It also supervises banks in the euro area and other EU countries that have chosen to participate in the Single Supervisory Mechanism.

In the exercise of its monetary policy and supervisory tasks, the ECB may impose sanctions on undertakings (e.g. credit institutions) that fail to comply with ECB or EU legal acts.

It sets out the conditions under which the ECB may impose fines or periodic penalty payments on any undertakings that do not comply with obligations arising from ECB and EU legal acts.

Key Points

The upper limit for fines on undertakings is €500 000 or, in the case of sanctions imposed in relation to the ECB’s supervisory tasks, twice the amount of the profits gained or losses avoided because of the infringement or 10 % of the total annual turnover of the undertaking.

The upper limit for periodic penalty payments is €10 000 per day of infringement or, in the case of sanctions imposed in relation to the ECB’s supervisory tasks, 5 % of the average daily turnover per day of infringement.

When considering a sanction, the ECB takes into account:

the good faith and openness of the undertaking concerned;
the seriousness of the impact of the infringement;
the profits obtained by the undertaking from the infringement;
the economic size of the undertaking;
any prior sanctions imposed on the undertaking for the same infringement by other competent authorities.

The Executive Board decides whether to initiate an infringement procedure.

The undertaking concerned is given no fewer than 30 days in which to present its defence to the ECB or to its national central bank.

The Executive Board adopts a reasoned decision on whether to impose sanctions on the undertaking. Within 30 days of receiving the decision, the undertaking may request the Governing Council to review the decision. Failing that, the decision becomes final.

If requested, the Governing Council will review the decision of the Executive Board and notify the undertaking concerned of its conclusion. It will inform the undertaking of its right of judicial review.

The infringement procedure must be triggered within 1 year of the existence of the infringement becoming known to the ECB or to the national central bank of the jurisdiction where the infringement occurred. Failing that, it expires.

Council Regulation (EU) 2015/159 added new provisions to enable the ECB to impose sanctions in the exercise of its supervisory tasks. The new rules set out the fines, time limits and procedures which are applicable in such cases.

ACT

Council Regulation (EC) No 2532/98 of 23 November 1998 concerning the powers of the European Central Bank to impose sanctions (OJ L 318 of 27.11.1998, pp. 4-7)