The idea of having to modify the treaties and of engaging in a vast debate on the Member States’ loss of sovereignty cooled down the ambitions of the Lamfalussy process.

This group was led by Jacques de Larosière, a French senior officer who held, until 1978, the position of Director General of the Treasury in France.

The supervision report included: Based on these three criteria, the review found that a total of 105 out of the 130 assessed banks met all minimum capital requirements on 31 December 2013.

00000² Taking into account the orderly resolution plan of this institution, which benefits from a State guarantee, there is no need to proceed with additional capital raising.

[20] These comprehensive assessments are conducted either when a bank is recognized as significant or when deemed necessary (i.e., in case of exceptional circumstances or when a non-Eurozone country joins the mechanism).

The aggregate results of those tests show that, in 2018, both sets of banks had again strengthened their capital base compared to 2016, increasing their potential of resistance to financial shocks.

[26] Croatia, being the latest country to join the Eurozone on 1 January 2023, was accordingly added to the scope of application of European Banking Supervision.

In case of non-compliance with these requirements, the ECB can charge a fine up to the double of the profits (or losses) which have been generated (or caused) by the breach and that can amount up to 10% of these banks’ annual turnover.

[41] As banks can take considerable risks, holding capital is essential to absorb potential losses, avoid bankruptcies and secure people’s deposits.

[44] If customers do not follow the agreed upon repayment terms for 90 days or more, the bank must further protect itself by increasing its equity reserve in the event the loan is not paid.

[45] In addition to the core SREP process, the ECB is also in charge of assessing banks’ acquisition of qualifying holdings, in accordance with Regulation 1024/2013, Art.

[49][51] On the other hand, spreading risks across different geographies could also be a threat to the stability of financial markets: one might, indeed, worry of a potential effect of contagion between regions.

[48][52] Such transactions could also lead to the creation of groups regarded as “Too big to fail”, which, in case of systemic crises, would require significant support from the public purse.

[51] Following the terrible consequences of the Lehman Brothers’ fall in 2008, public authorities seem committed to avoid the collapse of other systemic banks.

[54] As this opposition of opinions illustrates, if cross-border mergers might have the potential of reducing the exposure of individual firms to localized shocks, studies[54] show that they also increase systemic risks on financial markets.

In the attempt to mitigate those risks, the ECB is, since 2013, responsible (as part of the Single Monitoring Mechanism), with the European Commission, for assessing the soundness of banking mergers (Council Regulation No 1024/2013, Art.

[31] While the European Commission is in charge of checking the impacts such transactions will have on competition and, therefore, on consumers, the ECB is tasked to monitor the risks entailed by the suggested consolidations.

This national authority must then conduct an assessment of the deal and forward its conclusions to the ECB, which is the final decision-maker, validating (with or without conditions) or refusing the transaction (Council Regulation No 1024/2013, Art.

[43] Even though transactions are assessed on a case-to-case basis, the supervision process of these deals follow the same three stages: In phase two, the ECB pays particular attention to the sustainability of the suggested business model (e.g., under which assumptions it has been built, what has been planned in terms of IT integration, etc.)

[51] This reaction could be explained by the current incompleteness of the Banking Union: lacking a third – risk-sharing – pillar, national authorities would not be ready to drop their prerogatives.

[59] Methodological flaws related to these stress tests have been identified and corrected throughout the years in order for these assessments to properly reflect the actual risk status of the banks.

[61] Today, stress tests remain flawed: e.g., they do not take into account potential externalities and spillovers while these risks have been shown to have significant impacts in a time of crisis.

In addition, some aspects of bank supervision (e.g., consumer protection or money laundering monitoring[65]) continue to be dealt with at the national level.

National authorities are also in charge of defining their own macro prudential policy, limiting the ability of the ECB to take a proactive stance on systemic and liquidity risks.

[68] The quality of the ECB’s banking supervision is dependent on the effectiveness of the Single Resolution Mechanism as well as on the creation of a deposit insurance scheme.

[69] With regards to the deposit insurance scheme, it has been subject to a first proposal by the Commission in November 2015 but no tangible progress has been made since then to achieve its implementation.

[71] The perceived need of democratic legitimacy that is at the basis of these procedures can be thought to create a shift of accountability from the ECB to the institutions – or member states – of the Union.

A final important question arises when prudential supervision and monetary policy are at stake, as it is the case at the ECB: as these two areas are intertwined, how to avoid potential conflicts of interest?

[73] In 2017, Banca Monte dei Paschi di Siena, an Italian bank, was subject to a national insolvency procedure following multiple unsuccessful recapitalisations.

This Covid-19 crisis could actually be considered as a real-life stress test whose macroeconomic factors could later be used to readjust the EBA-ECB most severe scenario in their subsequent evaluations.