The European Central Bank faces a race against time to set up a watchdog for the euro zone's 6,000 banks and risks having an under-equipped team in place when it begins the task in mid-2014. The Single Supervisory Mechanism (SSM) marks the first step towards a banking union, Europe's plan for a more integrated financial system that foresees a mechanism to wind down non-viable banks and a deposit guarantee scheme being set up later.
The union aims to break the link between governments and banks to prevent taxpayers from having to bail out failing lenders in future and to avoid a repeat of the financial crisis.
Europe's leaders have given the central bank the task of setting up the SSM, but the project risks a stumbling start. The ECB does not yet have a set of criteria to assess which banks it would supervise directly, rather than letting national supervisors do the leg work. It is also unsure about how exactly to go about its work, and still needs to hire staff for the job.
"For the monetary union, we had nine years to prepare," said ECB Executive Board member Yves Mersch, who along with ECB Vice-President Vitor Constancio is in charge of setting up the SSM. "Here, regulation gives us 12 months," he said earlier this month in Brussels. "It hugely underestimated the enormous logistical task it takes to set up such a banking union."
Before it can really get going, the ECB must wait for legislation on the SSM to enter into force, expected in July.
Then the central bank will have roughly a year to hire staff, lay out common rules and decide how to supervise banks. "Without very close co-operation with the national competent authorities, we will not be able to do this in the very short term," said Mersch.
To be as ready as it can be come mid-2014, the ECB is drawing on the expertise of national supervisors. A task force that started out last year with a handful of experts has recently been complemented by about 80 to 90 national officials on secondment to Frankfurt for an initial periods of six months, people familiar with the matter said.
The ECB is unable to directly hire staff for the new body until legislation enters into force. Only then can it start recruiting properly and appoint a leadership team.
The head of the French supervisor, Daniele Nouy, is widely tipped to head the SSM, several sources close to the matter said, though no candidates have yet been officially nominated. Helmut Ettl, co-head of Austria's Financial Market Authority, explained that senior officials were nonetheless already meeting frequently "to prepare all the measures that can be done now even without the appropriate legal basis".
Sabine Lautenschlaeger, who heads one of the national supervisors in her role as vice-president of Germany's Bundesbank, is inundated with paperwork on the SSM. It would take more than a year to set up a fully functioning supervisory body, she said. "But that doesn't mean that we can't be ready by the middle of next year to get started."
For now, officials working on the project are working in offices scattered across the three buildings the ECB rents in Frankfurt as the central bank is already bursting at the seams.
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