The Rise of National Supervisory Policy-Making Accountability to the EU Level: The Supervision of Less Significant Banks in the Single Supervisory Mechanism

On 4 November 2014, the European Central Bank (ECB) assumed ultimate responsibility for the supervision of euro area headquartered banks. Together with national bank supervisors (‘NCAs’), the ECB forms the Single Supervisory Mechanism (SSM) – a new vehicle for carrying out supervisory tasks in Banking Union (BU). The banking supervision in the SSM is principally a shared competence: the ECB supervises significant institutions (SIs) whereas the NCAs the rest of them (less significant institutions, LSIs) but under the ECB’s oversight. When carrying out supervisory competences, the ECB and NCAs apply the ‘Single Rulebook’ which consists of a body of strengthened rules on prudential supervision defined at the EU level. This paper explores in-depth the EU-level accountability arrangements underpinning the exercise of (remaining) national supervisory competence within the SSM. By resorting to tools offered by the Principal-Agent framework, we explore the NCA accountability for LSI supervision vis-à-vis selected majoritarian (political accountability) and non-majoritarian (technical accountability) principals. We draw an ‘accountability chain of relations’ between the NCAs, the ECB and the European Parliament/Council. The NCAs are accountable for LSI supervision to the ECB, which in turn is accountable for its oversight over LSI supervision to the EU political government. We claim that the national supervisors are indirectly politically and directly technically accountable to the EU level. In doing so, we identify a number traditional of the ex-ante (administrative procedures) and ex-post institutional arrangements (known as the ‘police-patrols’ and ‘fire-alarms’) governing LSI national supervision. Such a framework constitutes an improvement in comparison to the pre-crisis supervisory regime, in particular the newly introduced technical accountability can be seen as a real ‘game-changer’ in the European governance in banking supervision. The paper concludes by discussing important challenges which this new accountability framework may face.