The financial crisis has pointed up the need to reinforce the structure of financial supervision within the European Union. In the context of the new supervisory system, it is essential to be able to detect any risks to stability and to set up an efficient alert system. Moreover, the new structure meets the objective of a single, stable market for financial services bringing together all the national supervisory authorities within a European operational network which has shared and mutually reinforcing responsibilities.
The European System of Financial Supervision is made up of:
- the European Systemic Risk Board (ESRB)
The ESRB is in charge of monitoring and analysing any risks to the stability of the financial system arising from macroeconomic developments and developments within the financial system as a whole (macroprudential oversight). To this end, the ESRB issues early warnings in cases where system risks are building up and, if necessary, makes recommendations for measures to be taken to deal with these risks.
- the three European Supervisory Authorities(ESAs)
These Authorities work together in a network, interactingwith the existing national supervisory authorities in order to ensure the financial soundness of the financial institutions themselves and to protect users of financial services (microprudential supervision). The new European network combines supervision of companies at national level with close coordination at European level, so as to encourage regulatory harmonisation as well as consistency in supervision and in implementation of the rules.
- mechanisms such as joint committees
These will be set up so that the national supervisory authorities can reach agreement and coordinate work on matters concerning cross-border establishments or within colleges of supervisory authorities.
- national supervisory authorities
One of the responsibilities of the European supervisory authorities is to ensure the orderly functioning and integrity of financial markets and the stability of the financial system in the European Union. To this end, they are mandated to monitor and assess market developments as well as to identify trends, potential risks and vulnerabilities stemming from the micro-prudential level.
One of the primary supervisory tools used by these authorities to conduct such an analysis are the EU-wide stress tests.
Moreover, the results of a capital buffer exercise were published in october 2012 by the European Banking Authority (EBA).