Colleges as an effective tool for cross-border supervision
Enhanced cooperation between supervisory authorities both at EU and global level is the key to strengthening the supervision of cross-border banking groups. The vehicles for the coordination of supervisory activities are the colleges of supervisors. Under EU law, such colleges have to be established for EEA banks with subsidiaries or significant branches in other EEA countries. They may include supervisors in non-EEA countries, where relevant. When they function at their best, the colleges allow supervisory authorities to join forces, share knowledge and use skills and resources more effectively and efficiently, regardless of their individual jurisdiction. This requires determination and significant efforts to prompt coordinated approaches among competent authorities. To assist in developing a consistent and effective college framework, the EBA’s predecessor, the CEBS, published guidelines (i) on the operational functioning of colleges and (ii) on the joint assessment of banks’ risks, and joint decisions on the adequacy of cross-border banks’ capital within a college setting.
The structure of colleges reflects the activities of the supervised entity. Some of the smaller ones consist of two authorities only, whereas others comprise 20 or more authorities from all parts of the world. The frequency and intensity of college activities can also differ significantly depending on the size and complexity of the institutions.
2011 was an important milestone in the development of the European colleges of supervisors as it was the first year that colleges legally had to reach joint decisions on the level of risk-based capital adequacy for cross-border banking groups, both on consolidated and individual entity levels. Such decisions, based on the joint risk assessments conducted by the college members (commonly referred to as joint risk assessment and decisions – JRAD), now form an integral part of the supervisory cycle for cross-border banks.
Role of the EBA
The EBA focuses its monitoring activities on around 40 ‘priority’ colleges established for the supervision of the largest cross-border groups. The tasks performed by EBA staff include (i) participation in all aspects of college work, (ii) provision of guidance and tools to assist in fostering a common supervisory culture; and (iii) assessing and ensuring the colleges’ adherence to both annual EBA action plans and the college-related guidelines mentioned above. The overall aim of EBA staff participation and monitoring is to oversee the effective functioning of the colleges and their compliance with Union law.
The role of colleges in crisis management
The importance of robust crisis management procedures has become evident in the turmoil of financial markets in recent years. Proper crisis management is complicated at a domestic level and even more complex where cross-border banking groups are involved. To address this aspect of risk management, the EBA has been mandated to contribute to, and to actively participate in, the development of effective and consistent recovery and resolution plans in the EU. In 2011, the EBA began attending crisis management groups (CMGs)/cross-border stability groups (CBSGs) for some of the major banking groups with the objective of facilitating the development of best practices in this important area.
For more detail on supervisory colleges please go to publications