By Adina Maricut-Akbik, Hertie School, Berlin
Since the euro crisis, the European Central Bank (ECB) has expanded its powers from monetary policy to banking supervision in the Eurozone. In the framework of the Single Supervisory Mechanism (SSM), established in 2013, the ECB became responsible for the direct supervision of the largest banks of Eurozone countries. The goal was to rebuild trust in the European banking system by ensuring consistent supervision and thus increasing the resilience of banks. Smaller banks remained within the purview of national supervisors, under the indirect supervision of the ECB. The expansion of ECB powers in banking supervision was accompanied by the institutionalization of new accountability obligations vis-à-vis the European Parliament (EP), separate from monetary policy. The purpose of the article was to assess the functioning of the new accountability relationship between the ECB and the EP in banking supervision based on the practice of parliamentary questions and answers exchanged between the two institutions in the first years since the establishment of the SSM (2013-18).
The idea that parliaments can and should hold central banks accountable is part of the general principles of legislative oversight in democratic settings. This type of political accountability is seen as the counterpart to delegation: if a specialized task (such as banking supervision) needs to be carried out in a specific setting (like the Eurozone), the task is delegated to an actor with the expertise and policy credibility to do so (in this case the ECB). From a democratic perspective, the act of delegation needs to be countered by accountability mechanisms that seek to check whether the actor performs its tasks as intended at the moment of delegation. In the SSM, the EP does not have at its disposal the full toolbox of accountability mechanisms available to national parliaments overseeing specialized agencies. For example, the EP cannot sanction the ECB by changing its legal framework in banking supervision – a competence that belongs to national governments in the Council. However, the EP can use the tool of parliamentary questions to call the ECB to account for its supervisory decisions. Such questions can either be addressed orally in regular public hearings with the ECB’s Chair of the Supervisory Board, or in writing through letters – to which the ECB is obliged to respond within five weeks (SSM Regulation, Article 20).
The article shows how an interactionist approach to accountability helps to investigate the exchange of questions and answers between Members of the European Parliament (MEPs) and the ECB. The interactionist approach is premised on the idea that in practice, accountability interactions presuppose a back-and-forth exchange between two parties: the first, known as the forum (here the EP), is legitimized to ask questions and contest the activity of the second (the actor, here the ECB), which in turn is required to engage with the contestation of the forum and justify its conduct. Accordingly, accountability interactions are envisaged in three steps, where: (I) the forum contests the decisions of the actor, (II) the actor silences, rejects or engages with said contestation and (III) the forum follows up on the issue (or not), thus continuing or ending contestation on the matter. Contestation can be weaker, when forums merely request information or justification of decisions from an actor, or stronger, when forums request changes of decision or sanctions to be applied to the actor. The interactionist approach proposes to keep an inventory of the type of questions posed by forums and the type of answers provided by actors in order to evaluate the extent of a forum’s contestation and the degree of an actor’s responsiveness within a given accountability relationship. The dataset behind the article includes 337 written questions and 369 oral questions (and as many corresponding answers) identified during the period November 2013-April 2018.
In the case of the EP and the ECB in banking supervision, the analysis identified a frequently-used infrastructure for political accountability that is however limited in ensuring a stronger contestation of ECB supervisory decisions. The vast majority of questions were categorised as ‘weak’ according to the interactionist approach, for various reasons: some were mere requests for policy views about legislative initiatives in the field of banking supervision, others were outside the scope of ECB competence in the SSM, and many more were demanding transparency regarding the situation at specific banks supervised by the ECB. In respect to the latter, the problem comes from the tight confidentiality rules in the SSM, which allow the ECB not to disclose information about supervisory decisions concerning individual banks. And yet these are the questions that feature most often when MEPs contest something about ECB supervisory conduct. Notwithstanding the confidentiality requirements, the ECB is generally open to engage with questions from MEPs – especially when it comes to the internal organization of the SSM or the decision-making process thereof. Moreover, in the few cases where MEPs demanded a change of conduct, the ECB demonstrated willingness to address their requests and subsequently made the required adjustments. So far, it seems that the EP can exercise more accountability when it has evidence – provided by internal parliamentary services – that the ECB acted outside the limits of its mandate in the SSM, as was the case of the 2017 Addendum to the ECB Guidance on non-performing loans.
Under the circumstances, the question is what can be done to improve the record of accountability interactions in the SSM. In line with the interactionist approach, what is needed is for MEPs to contest relevant issues regarding ECB conduct in banking supervision and, in turn, for the ECB to engage with contestation and change its decisions under specific circumstances. These two conditions require minimising the asymmetry of information between the two institutions, which is not an easy task. One possible solution is for MEPs to develop in‐house expertise on banking supervision in order to ensure that their questions are addressed to the relevant institution while substantively contesting [something about] the ECB conduct in the SSM. Another avenue of reform is to revise the SSM confidentiality rules by identifying specific conditions under which supervisory decisions can be disclosed, for example after a sufficient period of time has passed or after a bank was declared failing or likely to fail. The idea to completely reform professional secrecy standards applicable in the SSM is not novel, although its feasibility under the current circumstances remains low. Such a reform would require a review of the SSM legal framework, but more importantly a change of approach from the ECB leadership. The political feasibility of this reform will be decided in the years to come.
This blog post draws on the JCMS article, Contesting the European Central Bank in Banking Supervision: Accountability in Practice at the European Parliament
Adina Maricut-Akbik is Postdoctoral Researcher at the Hertie School in Berlin. Her current research focuses on political accountability in EU economic governance and EU integration theory. Her interests also include informal politics in the European Council and the Council and inter-institutional decision-making in justice and home affairs.