Only shortly after its creation, the European Banking Authority (EBA), the EU agency that was established in 2011 to foster a harmonized approach towards banking regulation and supervision in all EU Member States, found itself in an existential struggle: The financial crisis continued with full speed and even transformed itself into a full-fledged sovereign debt crisis that brought the Economic and Monetary Union (EMU), i.e. the group of Member States that share the euro as their common currency, to the brink of failure. This lead to the understanding that refinancing a country could not be justified politically based solely on harmonized regulation and supervision as provided by the EBA. Instead, much stricter and, moreover, centralized banking supervision was deemed necessary to provide for the corresponding checks within a newly formed ‘Banking Union’. To this end, swift action was taken and direct supervisory powers over all banks within the EMU were transferred to the ECB under the Single Supervisory Mechanism (SSM) as a central pillar of the Banking Union in 2014.
Given the resulting coexistence, Ferran and Babis bluntly remarked that the EBA must raise “a defense against being condemned to irrelevance”. This situation has only been exacerbated by the UK decision to leave the EU. Due to this decision, the case for the existence of the EBA to foster cooperation between Member States participating in the SSM and the ‘outs’ (the by far most relevant of which is the UK) has lost much of its appeal. This is demonstrated by the fact that the Commission in its public consultation on the operations of the European Supervisory Authorities states that the EBA will have to be relocated from its London offices and also used this as an opportunity to ask the more fundamental question if its overall structure is fit for purpose or whether radial changes, such as a merger with EIOPA, the EBA’s sister agency responsible for insurance and occupational pensions, should be considered.
Against this background, I will discuss whether the EBA has become futile. Following an overview of the developments that led to the coexistence of the EBA and the ECB exercising direct supervision under the SSM (part I), I will analyze to what extent the EBA still has a distinct role (part II). Based on this, I will address the fundamental question (part III): Does the EBA still add value? Part IV concludes.
I. The EBA/SSM dichotomy as a result of the politically feasible
During the financial crisis, national interests prevailed and the reliance on a level playing field based on a harmonized regulatory regime proved ineffective. The EU therefore left its strong focus on regulatory harmonization and ventured into the supervisory sphere on January 1, 2011 with the establishment of the EBA and its sister agencies. Nevertheless, the national authorities continued to be responsible for supervising individual institutions on a day-to-day basis.
Only shortly afterwards, with the sovereign debt crisis causing a conflagration in the euro area, it became apparent that this upgrade to supervisory coordination was still inapt to address the “destructive feedback loops between euro-area sovereign debt and the banking system“. In the light of the near breakdown of the euro area, the wisdom of Jean Monnet that “[p]eople only accept change when they are faced with necessity, and only recognize necessity when a crisis is upon them” was to hold true again. The SSM was established as the first component of the Banking Union, amounting to a transfer of direct day-to-day supervision of all EMU institutions to the ECB. As stated in the SSM Regulation, its purpose is to provide “supervision of the highest quality, unfettered by other, non-prudential considerations”. This transfer of direct supervisory power clearly was a seminal step, resulting in the ECB’s role under the SSM being in direct contrast to the predominantly coordinating role of the EBA.
II. The current state of affairs
This rapid development has led to a situation in which the ECB as a euro area institution and the EBA as an EU agency responsible for all twenty-eight Member States are active in the same realm. Therefore, I will discuss their respective mandates to assess whether there is a meaningful role left for the EBA.
While the EBA is active in the fields of regulation, supervision, consumer protection and the combat against financial crime (Anti-Money Laundering (AML) and Countering the Financing of Terrorism(CFT)), the mandate of the ECB under the SSM is more narrow both geographically as it extends only to Member States participating in the SSM (so far, only the euro area Member States) and thematically, as it engages solely in prudential regulation and supervision.
Regarding regulation, the EBA is strongly focusing on its contribution to the single rulebook via the provision of advice in the drafting process of Level 1 legislative acts and Level 2 measures as well as via its work on guidelines, recommendations, opinions and reports. The ECB, on the other hand, has the power to adopt regulations per Article 132 of the TFEU. While the ECB is bound by EU law and the standards developed by the EBA, the risk remains that it might develop into a “competing standard-setter”.
Potential conflicts also arise in the supervisory sphere. Under normal circumstances, EBA focusses its resources on building a common supervisory culture by organizing EU-wide stress tests, staff exchanges and peer reviews, participating in colleges of supervisors, and providing guidelines and recommendations on supervisory best practices. In addition to this coordinating role, EBA is assigned direct power in the case of breaches of EU law, in emergency situations, and during mandatory mediations between national authorities. However, these powers are subject to severe restrictions and therefore cannot be considered meaningful. The ECB, on the other hand, has been equipped with direct supervisory and investigatory powers to engage “in the messy, politically-sensitive, and risky business of direct operational supervision”. As such, the ECB is responsible for the authorization of institutions, for ensuring compliance with prudential requirements, and for the conduct of stress tests and supervisory reviews. Therefore, a clash might occur not only in the theoretical situation that the EBA exercises direct power towards the ECB. Much more likely, it might be that their stress test results diverge in terms of practices or results and that the EBA guidance on supervision might not be in line with the ECB internal supervisory manual.
In the realm of overlapping tasks, the potential for a turf war thus certainly exists. However, the EBA stated in its 2014 Annual Report that it “established good operational relationships with the ECB/SSM”. This is demonstrated by the fact that for example in the field of stress testing, the EBA and the ECB together engaged in a comprehensive assessment. Also, regarding supervisory reporting, both cooperated on common standards to ensure comparability of information. Nevertheless, a meaningful input in fields of joint responsibility does not suffice to justify the existence of the EBA as a separate agency. Therefore, I will now focus on distinctive task of the EBA to assess its added value.
III. The path ahead: Does the EBA still add value?
Before ‘Brexit’, a strong argument for the post-SSM existence of the EBA was the need to coordinate between the SSM members and the non-participating Member States. In this regard, Ferran stated that “[t]he EBA could function as the bridge between the ECB and the supervisory authorities of the remaining Member States and, as such, could help to preserve the integrity of the Single Market”. While after ‘Brexit’ there will still be EU Member States outside the euro area, the need for coordination will be much less relevant due to the considerably smaller banking sectors of the remaining ‘outs’, i.e. Bulgaria, Croatia, the Czech Republic, Denmark, Hungary, Romania, Poland and Sweden. To establish an identity and demonstrate its on-going relevance, the EBA therefore should focus on its tasks that do not overlap with the prudential role of the ECB, namely AML/CFT and consumer protection. The resulting risk for banks, termed conduct risk, i.e. “the current or prospective risk of losses to an institution arising from inappropriate supply of financial services including cases of wilful or negligent misconduct“, is a major component of their risk profile. Even though these risks must therefore be considered to get a complete picture of an institution, the corresponding supervisory tasks have not been transferred from the national supervisory authorities to the ECB.
Especially the example of AML/CFT highlights the relevance of conduct risk. Non-compliance not only carries the risk of huge fines that in itself might negatively affect the financial situation of an institution, low standards also lead to instabilities if a country’s financial sector is bloated due to the influx of funds that are attracted by lax conduct regulation. Against this background, the ECB must have conduct risk on its radar even though it falls outside its realm of supervisory responsibility. Therefore, it can be assumed to have a strong interest in the EBA fostering strong and harmonized standards across the institutions it supervises.
The same holds true for consumer protection. Again, this is not a field of ECB competence even though failures might adversely affect the safety and soundness of institutions under its supervision. Unfortunately, the topic has received very little attention during the last years due to the crisis-induced strong focus on prudential regulation, leading Moloney to the conclusion that „retail investor protection seems to be a peace-time preoccupation“. By now, however, it seems that the EBA is going to put a stronger focus on consumer protection: In its 2015 Work Program, it already considered “promoting transparency, simplicity and fairness” for consumers a key task. To live up to this promise, it has created a ‘consumer corner’ on its website, providing information on personal finance (how to open a bank account in EU countries, transferring money to other EU countries, etc.), on how to file a complaint, a list of regulated institutions, and all warnings that have been issued by the EBA. However, even more could be done. The EBA could, for instance, live up to its task to coordinate financial literacy and education initiatives of the national authorities. In addition, the EU approach towards product governance and product intervention is a field in which the EBA should get involved to ensure consistency.
To conclude, one must admit that the EBA most certainly had a rough start, being born right into the crisis without the tools at hand to intervene in any meaningful way. Against this background, its continued existence and the fact that the ECB does not seem to have adopted an a priori antagonistic stance must already be appreciated. To foster this positive relationship with the ECB in the future and to be prepared against being deprived of its status as an individual agency, the EBA must however clearly demonstrate its distinctive identity. While its work on the single rulebook and on supervisory coordination in the prudential sphere certainly is meaningful, it should also focus on the areas that fall outside the realm of ECB supervision, namely AML/CFT and consumer protection. Here, the ECB can be expected to have a strong interest in the EBA ensuring that high standards are applied across national authorities, thereby contributing to the overall safety and soundness of the institutions under its supervision.
Lena Templer is a PhD candidate at Bucerius Law School and has worked in the Compliance department of an internationally active bank for two years.
 Eilis Ferran and Valia SG Babis, ‘The European Single Supervisory Mechanism’ (2013) 13(2) Journal of Corporate Law Studies, 255-285.
 Niamh Moloney, ‘European Banking Union: Assessing Its Risks and Resilience’ (2014) 51(6) Common Market Law Review, 1609-1670.
 As quoted by Gertrude Tumpel-Gugerell, ‘The Financial Crisis – Looking Back and the Way Forward’ (Conference “Rien ne va plus? Ways to rebuild the European Social Market Economy” organised by the European Economic and Social Committee and European Trade Union Confederation, Brussels, 22 January 2009).
 SSM Regulation, recital 83.
 Moloney, ‘European Banking Union’ (n. 2).
 EBA, ‘Annual Report’ (2014).
 Ferran, ‘The Existential Search of the European Banking Authority’ (2016) Eur Bus Org Law Rev, 285–317.
 European Banking Authority, ‘Guidelines for Common Procedures and Methodologies for the Supervisory Review and Evaluation Process (SREP)’ (2014).
 SSM Regulation, recital 29.
 Niamh Moloney, ‘Regulating the Retail Markets: Law, Policy, and the Financial Crisis’ (2010) 63(1) Current Legal Problems, 375-447.
 EBA, ‘Work Programme’ (2015).
 Karel Lannoo, ‘The Roadmap to Banking Union: A Call for Consistency’ (2012).