Top German court rejects challenge to European banking union

Germany’s Constitutional Court has rejected a challenge to the European Central Bank’s supervisory system for eurozone banks and its joint fund for the restructuring of failing institutions.

The decision was handed down by presiding judge Andreas Vosskuhle.

“After extensive review,” the fact that the supervision of eurozone financial institutions is not exclusively carried out by the ECB was pivotal in reaching the decision, the judge said. According to the court, national regulators still retain broad authority.

Large banks and banking groups have been supervised since 2014 by overseers at the ECB in Frankfurt, Germany – a move instituted in response to the 2007-08 financial crisis.

The plaintiffs had charged that the transfer of regulatory authority to the ECB under the banking union was not covered by EU treaties.

The two pillars of the European banking union are the Single Supervisory Mechanism (SSM), which grants the ECB supervisory powers over major banks in the eurozone, and the Single Resolution Mechanism (SRM), created with a board and a fund for the resolution of insolvent big banks.

“The European Union did not exceed the competences conferred on it by the Treaties when adopting the legislative framework regarding the European Banking Union,” the court said in its ruling.

“The establishment of and competences assigned to the Single Resolution Board (SRB) by the SRM Regulation raise concerns with regard to the principle of conferral, but they do not amount to a manifest exceeding of competences if the Board acts strictly within the limits of the tasks and powers assigned to it,” it added.

ECB bank regulators currently oversee 114 “significant” institutions, 19 of which are located in Germany.

The term “significant” is determined by a bank’s assets, economic importance, cross-border activities and direct public financial assistance that it has requested or received. Regulators have jurisdiction over institutions whose total assets amount to more than 30 billion euros or 20 per cent of their home country’s GDP, as well as the three largest banks in each eurozone member state.

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