Is more accountability required for the European Central Bank for its role as prudential supervisor under the Single Supervisory Mechanism?
The Single Supervisory Mechanism (SSM) is now in force and is principally exercised by the European Central Bank (ECB) and National Competent Authorities (NCA) with the ECB leading supervision. Accountability measures have been introduced to ensure the ECB is accountable for decisions it takes as prudential supervisor of the banks of the Eurozone, and other banks in the European Union, which do not operate in the euro that may or may not be a participant in the mechanism. As criticisms of the ECB’s accountability continue by academics and political voices alike, are the current measures in proportion with the tasks the ECB has assumed as prudential supervisor under the SSM?
Abstract
This paper assesses the accountability measures that exist under the recently established Single Supervisory Regulation (SSM) 1024/13 for the European Central Bank (ECB). In order to provide the assessment of these measures, the meaning and aims of upholding accountability need to be uncovered. Among the ambiguities that have muddled the meaning of accountability through its loose application in modern politics, Bovens provides a definition of the term that is used to apply to the accountability of various European Union (EU) institutions. Bovens defines accountability as the relationship between an actor and a forum where the actor justifies a conduct or decision that has been committed to a forum and the forum poses questions to the actor and then passes a judgment on the conduct where consequences may follow. The rationale for maintaining an accountability measure exists for three reasons that are to provide the means for a democratic body to monitor, evaluate and influence the behaviour of the actor, to curtail the abuse of power and privilege of the concerned actor and to improve the efficiency of the actor to deliver better public value. These three reasons are used to create a criterion to measure the extent that an accountability measure achieves the three latter objectives in its operation. These criteria are applied to the accountability measures of the SSM Regulation to see if they meet these objectives.
Before the analysis takes place, an explanation of the constitutional framework of the ECB and SSM Regulation is provided to understand in what context the accountability measures operate. The ECB is an institution that historically operated solely in the maintenance of monetary policy. An important characteristic of the ECB is that it remains independent from the political bodies of the Union. By 2013, the EU legislators adopted the SSM Regulation entrusting a new task to the ECB for the prudential supervision of banks that will participate in the SSM, facilitating streamlined and consistent supervision to all those banks to protect their soundness and safety following the euro debt crisis.
The accountability measures within the SSM Regulation consist of reporting to the European Parliament, Council, Commission, Eurogroup, and national parliaments. Opportunities for responses to questions by the ECB to the Parliament, Eurogroup, and national parliaments are also available.
In the analysis of these measures, it is found that they fall short of the objective of accountability that allows a democratic body to monitor, evaluate and influence the behaviour of the ECB owing to the ECB’s independence. After observing arguments made from commentators over the adequacy and inadequacy of the accountability measures, it is discerned that the type of independence prescribed to the ECB under the SSM Regulation is distinguishable from its independence granted by the EU Treaties, relative to its monetary policy maintenance tasks. Therefore, establishing an accountability mechanism that can achieve the objective where it currently falls short by way of preventing the democratic body to monitor the ECB’s behaviour may be possible should the ECB independence under the SSM be redefined.
I. Introduction
Accountability has become a buzzword in western democracies over the past twenty years.1 It is accepted as a means to assure that a political process is altogether legitimate. While a discussion of the meaning of legitimacy and how it can be achieved is beyond the remit of this paper, it will be submitted that adequate measures of accountability will maintain a political body’s subjection to the rule of law, that is its overall purpose.2 The accountability of the European Central Bank as appointed prudential supervisor under the Single Supervisory Mechanism however, is not fit for purpose as a vital element of ensuring a full accountable process is missing. The missing element is the possibility to sanction the ECB for conduct for which it would be held accountable. This reasoning for the inadequacy of the installation of the accountability measures in the SSM Regulation will be explained at the end of this introduction, in the analysis and in the conclusion of this paper.
Accountability in the context of the European Union has in turn become a prevalent medium to tackle the ‘democratic deficit’ that arguably exists, bolstered by the rise of euroscepticism since the 1990s.3 It can be understood that the European Commission reformed its accountability procedures to address allegations of mismanagement, irregularities and neglect following the Commission resignation in 1999.4 The Commission enhanced its internal procedures by increasing transparency and answerability to the European Parliament amongst other convoluted checks and balances, but notwithstanding the result of its enhancement failing to transpire to the European public who remained to view the institution as a secretive organisation.5
Conversely, the European Central Bank from establishment has received its fair share of criticism for its lack of accountability, notably due to its high protection of independence from political influence. As far as its role as a body maintaining price stability is concerned, accountability has been limited to being answerable to the Court of Auditors and EU anti-fraud office (OLAF) without further democratic oversight, lest the credibility of its independence enshrined in Article 130 of the Treaty on the Functioning of the European Union (TFEU) is compromised.6 Whilst this paper will examine the ECB’s recently assumed role as the prudential supervisor of banks subject to the SSM, rather than its role to maintain price stability established since its formation, the previous point illustrates the continuous scrutiny the ECB has received in
1 Kuile G., Wissink L., Bovenschen W, ‘Tailor-made accountability within the Single Supervisory Mechanism’ (2015) 52 Common Market Law Review, Issue 1 p157
2 Alexander K., ‘European Banking Union: a legal and institutional analysis of the Single Supervisory Mechanism and the Single Resolution Mechanism’ (2015) E.L. Rev., 40(2), p171
3 Bovens M., Curtin D., and Hart P., (eds) The Real World of EU Accountability: What Deficit? (Oxford: OUP, 2010) p10
4 Ibid p63 5 Ibid p84-5
6 Chang M., Monetary Integration in the European Union (Basingstoke, UK: Palgrave Macmillan, 2009) p116
balancing the tension between its independence and accountability, in the means of defining the ECB as a legitimate institution.
At the time of the European sovereign debt crisis, measures were made to safeguard the stability of the euro and the banks in the European Union in rapid form. The SSM as an instrument to resolve the crisis and safeguard banks from further harm was established to supervise the actions of the banks under the mechanism, and facilitate financial integration and stability. The ECB was appointed as the central prudential supervisor of this mechanism by the EU legislature to bear the responsibility of monitoring the participating banks and retain authority for making decisions on the banks’ actions. It is accepted that the ECB acting as prudential supervisor is a huge task where great responsibility for its actions is not to be taken lightly. The Commission made it known to the drafters of the SSM Regulation that granting new powers to the ECB required a strengthening of democratic accountability as is presently seen in Article 20 of the regulation that contains the provisions to maintain the accountability of the ECB.7 It may be a fair point that where specific accountability measures have been introduced, the ECB has inadvertently been pulled closer to the political sphere by the EU legislature to support the economic policies in resolving the euro crisis.8 And with a greater political presence as far as ensuring the stability of banks and all other credit institutions in the euro area and those outside opting in to its supervision is concerned, greater accountability is needed to equate with the level of power the ECB has acquired from the SSM enactment. This paper will examine whether the accountability measures provided in the SSM Regulation are in proportion with the tasks and powers the ECB has assumed as prudential supervisor for the banks in the mechanism.
In order to examine the ECB’s accountability for its tasks under the SSM, the meaning of accountability itself will first need to be uncovered. A definition of accountability will be outlined and applied to the accountability measures established in the SSM. The study contained inside the book ‘The Real World of EU Accountability’ edited by Bovens, Curtin and t’Hart will be utilised to extract the definition of accountability used in application to prominent EU institutions, and then applied to the accountability of the ECB. This will be appropriate as the ECB has the status of a fully recognised EU institution from the effects of the Treaty of Lisbon in amending the Treaty of the European Economic Community (hereinafter Treaty of Lisbon) and therefore on equal footing with the other institutions recognised since establishment. Therefore this assessment remains in the same context. It will then be necessary to discuss the constitutional framework of the ECB and the legal framework of the SSM, with emphasis on the accountability provisions. Once the ECB and SSM framework has been outlined, its evaluation by commentators needs to be observed and from this, an analysis on the accountability provisions in the SSM framework will be submitted. It will be submitted that there is a lack of sanctioning by the democratic forum over the conduct of the ECB for which it would be accountable. This is a vital element for an accountable process by which the actor must face the consequences for the conduct in which it has justified to a forum, and that forum has agreed a sanction is to be imposed. This missing element alludes to 7 Regulation 1024/2013 Recital 85
the disproportion of the accountability measures contained in the SSM Regulation to the powers the ECB has assumed. The ECB has become a more powerful institution by managing the banks under the SSM and those powers it has attained must be accountable.
II. The Meaning of Accountability in the EU
The definition of accountability
Accountability as a term has been used interchangeably to conceive ideas of political transparency and trustworthiness. Its use in political discourse has become loosely utilised to synonymise accountability with ‘clarity’, ‘responsibility’, ‘involvement’, ‘deliberation’ and ‘participation’ as can be seen in the Commission’s White Paper on Governance (2001).9 However, the attachment of other words to the meaning of accountability further propels its meaning to ambiguity. The attraction of politicians to the utilisation of the term within their own political discourse continues to reinforce the status of accountability as a ‘buzzword’. The term remains ambiguous for its lack of equivalent translations in other languages and its expansion of its meaning in Anglo-American political discourse through loose application in a variety of settings does not assist this situation.10
Bovens et al. use the core concept of accountability in order to examine the EU institutions in their study, whereby they utilise the etymological roots of the term to denote that accountability is the obligation to explain and justify a particular conduct. Bovens uncovers the narrow meaning of accountability in his earlier work that is then applied in the book, ‘The Real World of EU Accountability’.11 There is a relationship between an actor and a forum where the actor justifies a conduct or decision that has been committed to a forum, and the forum poses questions to the actor and passes a judgment on the conduct where consequences may follow.12 What Bovens emphasises is that mere transparency is not enough to legitimise an accountability measure, nor is mere responsiveness and participation. The social relation that is formed between the actor and forum qualifies as an accountability process once seven constituent elements that make up the above-mentioned definition of accountability are met.13
The seven constitutive elements that Bovens identifies to establish the mechanism of accountability are as follows. Firstly that, there is a relationship between an actor and a forum. The most common relationship example would be a principal-agent relationship, the forum being the principal that has delegated power to its agent. The second element being that the actor is under an obligation, and the third 9 Op Cit. 3 p32
10 Ibid p33
11 Bovens M., ‘Assessing and Analyzing Accountability: A Conceptual Framework’ European Law Journal (2007) Vol. 13 No. 4 p447
12 Ibid p450; Op Cit. 3 p35 13 Op Cit. 11 p452-3
that the obligation is to provide an explanation or justification. The next element is that the actor must justify a related conduct to a forum. The forum is able to pose questions and then the forum is able to pass a judgment. Finally, the actor may or may not face consequences for the committed actions.14 From these seven constitutive elements three stages of an accountability process are identified. The first stage of undergoing the accountability process is that the actor is obliged to provide information to the forum about the conduct concerned, and this may also take form in an explanation or justification. After all relevant information is collected, a debate will be held in the next stage where the forum may interrogate the actor, and question the conduct committed. This provides the means for the actor to be answerable for the committed conduct. In the final stage, the forum will pass judgment on the conduct of the actor, which may entail an approval, denouncement, or condemnation or other form of result of the conduct. Sanctions remain a possibility and it is argued by Bovens that they should be a constitutive element of the process of accountability, but as the term ‘sanctions’ has formal and legal connotations it excludes different types of forums that may not have a sanctioning power. Therefore, the ability for a forum to attribute ‘consequences’ has a wider application to processes of accountability and may range from penal fines to suspensions from office.15
An accountability process must be without inadequacies, whether that be through a lack of accountability arrangements, or excessive processes that hinders efficiency. Identification of inadequacies requires assessment, but it should be remembered why accountability is important in order to follow an assessment that aims to improve the accountability of an institution, body, person or other entity. Bovens provides three answers to this question of why accountability is important. Accountability provides a democratic means for citizens and representatives to monitor the conduct of their government. It also prevents a development of concentration of executive power to dangerous levels, which in other terms prevents corruption. And finally, it enhances a government’s ability to deliver better public value.16 These three answers in turn offer the method to evaluate an accountability mechanism. That is firstly to the degree that an accountability measure enables a democratically legitimised body (which may be the voter, parliament, representative or other body) to evaluate executive behaviour, and to encourage the actor to change that behaviour according to the body’s preferences. The second criterion that focuses on prevention of corruption, measures the extent that an accountability mechanism curtails abuse of power and privilege. The third criterion assesses the degree that a mechanism offers the right feedback and incentives to the actor concerned, in order to improve policies and achieve positive societal outcomes.17 Bovens et al. recognises that these criteria, each providing a different perspective of accountability (democratic, constitutional and learning), will not be of an equivalent standard among different entities. For example, an overly rigorous democratic control may prevent an agency from influencing creative policies and in the end become a rule-14 Ibid p452
15 Ibid p451-2; Op Cit. 3 p36-7 16 Op Cit. 3 p50; Op Cit. 11 p462 17 Op Cit. 3 p54-5; Op Cit. 11 p465-6
obsessed bureaucracy.18 Therefore we see that these criteria may not act as a catch all for all political bodies but varying standards may be more appropriate to assess accountability of different types. Although, it should not be dismissed that a body should not aim to achieve the aims of the three criteria. It will be useful to observe how the criteria have been applied to an EU institution in order to conceptualise how the accountability criteria will be applied to the ECB under the SSM mechanism.
The Accountability of the EU Commission: An Illustration
As mentioned earlier, the allegations of mismanagement, neglect, and fraud in conjunction with the investigative report published by the Committee of Independent Experts, led to the resignation under Santer in 1999, and induced the Commission to place accountability amongst other objectives squarely on the political agenda for the new Commission. The Commission embarked on a mass restructuring of its system to focus on the accountability of the commissioners and the institution itself.19 The new accountability regime saw the expansion of the European Parliament’s mandate to organise audits and reviews over the Commission, and act as a forum to scrutinise its actions in the aim of increasing accountability to politicians and the people of the EU. The Parliament is able to undertake a vote of no confidence and form committees to scrutinise commissioners, which in turn requires the Commission to regularly report to the Parliament, appear in committees, and answer questions posed by Members of Parliament. A shift in hierarchy in the Commission was also reformed where the President was distanced from the idea of being equals with the Commissioners, to obtaining the power to allocate the commissioners’ portfolios and even request dismissal of commissioners. The Amsterdam Treaty provided these powers to the President to the effect that the shift of hierarchy would encourage commissioners to be more accountable in their activities, lest they incur a sanction in consequence by the President. 20 Apart from changes made in the political sphere to improve accountability, an Activity-Based Management initiative was implemented to encourage drafting of performance orientated reviews and reports within the managerial aspects of the Commission. A European Transparency Initiative was also introduced in 2005 to enhance the Commission’s accountability towards the public through improved access of information. The radical wave of changes to improve accountability as well as the other objectives mentioned in the 2001 White Paper sparked the idea of new governance in the EU, but the response from commentators has been frosty as even ten years on from the White Paper, commentators have questioned the success of the EU’s aim to improve accountability, transparency, and participation.21 An assessment of the accountability under the Bovens criteria will illustrate this notion.
18 Op Cit. 3 p56 19 Ibid p63 20 Ibid p68
21 Dawson M., ‘Three waves of new governance in the European Union’ European Union Law Review (2011), 36(2), p208
Firstly, Wille in Bovens et al.’s work questions the extent to which the new accountability arrangements subject the Commission to democratic control as per the democratic perspective of the first criterion. The strengthened powers of the Parliament have obliged commissioners to report to the members of the European Parliament (MEPs), which in the course of initiating the legislative procedure, has allowed the Commission to secure a mandate from the Parliament when it has submitted its legislative proposal to the Council. The continuous scrutiny of commissioners by MEPs has constituted a check and balance to ensure the Commission acts within its competence and always places Commissioners ‘on edge’. However, Wille concludes that the accountability measures remain inward looking as the EU as a whole, still appears as an inaccessible entity to the electorate of the EP who still feel under-represented. On a direct level, voters do not have a say on who serves in the Commission and further to this point the election process of commissioners is hardly transparent. As a result, it would appear the accountability of the Commission only serves the interests of the European Parliament and other institutions and does not extend to the people. More interestingly, Wille identifies that the sanctioning powers of the Parliament are generally limitative where the only formal sanction available is to dismiss the whole Commission, which in itself is reserved for extreme circumstances. Albeit, it has not prevented the Parliament to exert pressure for the dismissal of commissioners by the Commission President, nor for the dismissal of candidates of commissioner portfolios which remain in the Parliament’s power.22 23 However, objectively speaking, the limited ability to formally
sanction commissioners appears to fall short of the final of the seven constituents for the mechanism of accountability. 24
The next assessment is to observe how the accountability arrangements have prevented an abuse of power in a constitutional perspective. The Santer resignation influenced the Commission to increase the managerial checks and balances within the institution including new codes of conduct and notices of inspection from the EU Anti-Fraud Office (OLAF), amongst other inspections for finance management.25 Preparations for such inspections, although well intended, had the effect of increasing the Commission’s workload reducing efficiency and limiting commissioners’ capacity to take risks in decision making. Such measures have left commissioners pinned down with overburdened regulation that prevent them from being able to work efficiently and with spontaneity. Whilst the extra control has benefitted the Commission by acting more responsibly, it seems to have come at a cost at limiting efficiency and ingenuity as an executive body in the EU.26
Finally Wille examines how the accountability arrangements have influenced the learning perspective of the Commission to enhance its deliverance in public value. Schemes set in place for the 22 See Gow, D., (2004) ‘MEPs reject anti-gay commission candidate’ [ONLINE] Available at: https://www.theguardian.com/world/2004/oct/12/gayrights.eu [Accessed 18 July 2016]
23 See Spiegel P., (2014) ‘Parliament rejects Bratusek for European Commission job’ [ONLINE] Available at: http://www.ft.com/cms/s/0/6b47b8ca-4f0d-11e4-9c88-00144feab7de.html [Accessed 18 July 2016] 24 Op Cit. 3 p75-8
25 See footnote 35 for case on OLAF applicability to the ECB. 26 Op Cit. 3 p80-1
Commission to monitor and evaluate its own policies were established to provide a basis for organisational learning, such as ‘Activity-Based Management’ and Strategic ‘Planning and Programming’. They offer feedback on successful policies and criticism on policies that do not work, providing the basis for the Commission to reflect on its work and improve on achieving its objectives. In practice, Wille finds that the quality of output of the Commission’s work has increased, but the bureaucratisation of these schemes have prevented a learning culture to develop. Cumbersome reporting has induced a necessity for compliance, rather than a motivation to maximise learning. In regards to accountability, despite initial thoughts that this reporting would increase transparency so that the Parliament may enhance their scrutiny of commissioners, the Parliament had not been using the reported information systematically, revealing that its use is somewhat limited.27
Tying this all together, Wille concludes that the accountability has increased among the three assessment criteria but lacks paradoxically in its external value as it is so focused at the supranational level, its benefit towards the public is undervalued.
Applying the Criteria to the European Central Bank
A lot is learned from the above illustration of the application of the criteria to assess the accountability of the Commission and as such, can be applicable to the assessment of the European Central Bank’s accountability according to the SSM Regulation. The above assessment shows that accountability has at its focus, a means to improve the legitimacy of a government by garnering further support from surrounding political bodies and perhaps most importantly, the support of the public. As far as utilising accountability to improve learning prospects is concerned, successful accountability produces smarter governance, which in turn yields higher value for a government’s citizens who will be ‘happy customers’.28 Then relating this to the context of the SSM, a successful accountability mechanism will generate satisfaction among the banks and credit institutions that participate to the ECB’s supervision.
The main obstacle to overcome when applying this assessment to the ECB is the application of criteria that will not conflict with the independence of the ECB through external, political influence. This is essential as previously mentioned the first criterion measures the ability of a democratic body to monitor and encourage behaviour of the actor. This reflects arguments made by the House of Lords of the UK government that the independence of the ECB continually remains at odds with an appropriate accountability measure, a tension that is difficult to ease.29 Kuile et al. however justifies that an accountability assessment is still possible and necessary to be applied to the ECB as the financial market place as a whole responds to the supervision of banks. Citizens will be affected by those decisions made by 27 Ibid p82-4
28 Ibid p189 29 See footnote 75
the supervisors upon which the financial markets respond and will call in to question their faith in the banking sector.30 This means that the ECB as the prudential banking supervisor owes a duty to supervise responsibly for the participant banks as well as for the benefit of EU citizens. Therefore accountability must be rightly imposed. Then despite any possibility that the ECB’s independence may prevent a preferable accountability mechanism to be endorsed, it should not mean that the ECB is unable to respond to the criteria such as developing a learning culture within its own means, nor even to receive feedback from external bodies lest the independence is undermined. This will be explored further in the analysis of this paper.
Kuile et al. uses Mashaw’s delineation of three forms of accountability, administrative, judicial and political, to identify the forum to the appropriate form. That is, the appropriate forum for administrative accountability would be inspectors, auditors and or supervisors who scrutinise the financial and administrative aspects of the actor in question. The courts are the appropriate forum for judicial accountability. And finally, the forums for the political form of accountability, are the political bodies and politicians.31 This paper will focus on the political form of accountability whereby the ECB will be accountable to the European Parliament, Council, Commission, Eurogroup and national parliaments as provided in the SSM Regulation, although, reference to the other two forms will be made. As these bodies form the forum of political accountability of the ECB, its ramifications will be of further relevance to the participant banks of the SSM, which for the most part have been subjected to the mechanism through the adoption of the Regulation by the Parliament and Council. Therefore, the ECB will be accountable to the political forum, for its actions as prudential supervisor under the SSM, through a process that requires a justification of its actions, whereby consequences may flow from those actions. The Bovens criteria will measure if this accountability process is up to a permissible standard, meaning that the accountability provisions of the SSM Regulation submit the ECB to full accountability for its actions and are not disproportionate to the powers it has gained. In other words, the application of the criteria will be able to reveal if they do not go far enough to make the ECB fully accountable for all actions and decisions. It is then necessary to understand exactly how the ECB operates as an institution, and the role it has as the prudential supervisor of banks, to assess its accountability and uncover its powers that require such assessment.
III. The European Central Bank, its Framework, and the SSM 30 Op Cit. 1 p158
The Constitutional Framework of the ECB
The ECB was founded in 1998 as a body that would realise the objective of the European Union to establish a monetary union. Prior to the entry of enforcement of the Treaty of Lisbon, the ECB remained a body with an undefined status within the existing treaties, causing spirited debate in questioning whether the bank should have equivalent status to the other EU institutions, subjecting it to follow the principles and objectives that bind the other institutions. Formal recognition of the ECB as an EU institution aimed to resolve this uncertainty, following the amendments made by the Lisbon Treaty as found in Article 13(1) of the Treaty on European Union (TEU).32 This article then goes on to say that further provisions on the ECB are set out in the TFEU, which identify the tasks of the ECB and its objectives.33
The objectives of the ECB are found within Title VIII, Chapter 2 of the TFEU, which states the provisions on monetary policy in the EU. The TFEU refers to the European System of Central Banks (ESCB) that comprise the ECB and the national central banks of each Member State, which jointly share certain objectives, but the treaty also isolates the ECB in some provisions that only apply to that institution. In regards the relationship between the ECB and the national central banks, the ECB exclusively governs in the ESCB and may choose to act by itself, or as deemed appropriate, through the means of the central banks as prescribed under Article 12.1 of the ESCB Statute.34 Therefore, the national central banks can be appropriately described as ‘organs’ of the ECB.35 Article 127 of the TFEU provides that the primary objective of the ESCB is to maintain price stability throughout the union, and shall also support the general economic policies of the Union without prejudice to its primary objective. The tasks laid down in section 2 of the same Article are for the ESCB to define and implement monetary policy, conduct foreign-exchange operations, hold and manage foreign reserves of Member States, and promote the smooth operation of payment systems. From establishment up until the introduction of the SSM, these objectives and tasks were the sole concern of the ESCB. The introduction of the SSM, which can be said to have changed the mandate of the ECB, will be discussed below.
The independence of the ESCB was modelled on the German Bundesbank owing to the treaty framers’ recognition that central bank independence, such as the Bundesbank’s, is successful in maintaining price stability, and maintaining this stability away from policy makers, who are likely to distort such stability. Due to this prioritisation of independence, the ECB has become one of the most independent central banks in the world.36 The provision that protects this independence is contained in Article 130 of the 32 Schuütze R., European Constitutional Law (2nd ed) (Cambridge: Cambridge University Press, 2016) p209
33 Treaty on European Union Article 13(3)
34 Protocol (No 4) of the Treaty on the Functioning of the European Union on the Statute of the European System of Central Banks and the European Central Bank
35 Op Cit. 32 p211-12 36 Op Cit. 6 p77
TFEU stating that the ESCB shall not take instructions from Union institutions, nor any Member State government, and the Union and Member State governments shall not seek to influence the ESCB. Along with its independence, the ECB is granted legal personality under Article 282(3) allowing the ECB to be independent in its decision-making and control of its finances. Although the ECB’s independence along with its legal personality portrays the ECB as a body that is especially independent in its own right from the entire Union, the European Court of Justice (ECJ) clarified that the ECB does not have legal independence per se, but is political, and is still subject to the Treaties and adopted legislation that regulates its tasks.3738
The decision-making inside the ECB is organised by two main bodies, the Executive Board and Governing Council. The General Council acts as a third body to include members that are national governors of Member States which do not have the euro as its currency. Due to its temporary nature as a body that exists while there are Member States still under the process to adopt the euro currency, this body will not be elaborated further.39 A separate body was created following the enactment of the SSM Regulation, the Supervisory Board, and the activities of this board will be explained in further detail later in this section. The Executive Board is established according to Article 283(2) of the TFEU and Article 11 of the ESCB Statute.40 Its six members are appointed by a qualified majority vote (QMV) by the European Council on recommendation from the Council after it has consulted with the European Parliament and Governing Council of the ECB. The Executive Board comprising of the President and Vice-President and the remaining four members, is responsible for the ‘current business’ of the ECB and take decisions by a simple majority. The board implements the monetary policy as required in Article 127 TFEU, and gives the instructions to the national central banks on how to implement monetary policies. The Executive Board is also responsible for preparing the meetings of the Governing Council.41
The Governing Council comprises the Executive Board and the governors of each national central bank whose currency is the euro. Each member of this council has one vote and decisions are normally made by a simple majority, but the accession of new Member States to the euro alters the voting procedure according to Article 10 of the ESCB Statute.42 It is also important to emphasise that the governors of the national central banks are prohibited from receiving instructions from their national governments, as they must act in the interests of the EU as a whole.43 Their role is to adopt guidelines and take decisions in 37 See Case C-11/00 Commission v. European Central Bank [2003] ECR I-7147 para. 135 ‘[Article 130] seeks, in essence, to shield the ECB from all political pressure in order to enable it effectively to pursue the objectives attributed to its tasks, through the independent exercise of the specific powers conferred on it for that purpose by the EC Treaty and the ESCB Statute.’ para. 138 ‘[N]either the fact that OLAF was established by the Commission … nor the fact that the Community legislature has conferred on such a body external to the ECB powers of investigations … is per se capable of undermining the ECB's independence.’
38 Op Cit. 32 p210
39 TFEU Article 141(1); Op Cit. 33 Articles 44-6 40 Op Cit. 34
41 Ibid Articles 11.2, 11.6,12.1, and 12.2 42 Ibid Article 10.2
ensuring the performance of the tasks entrusted to the ESCB according to Article 127 TFEU, which includes formulating monetary policy and providing the guidelines to their implementation.44 This makes the Governing Council the central policy maker within the ESCB.
Whilst this framework, formed the basis of the tasks defined in the treaties formally specifying the mandate of the ESCB, the wake of the Eurozone crisis spawned new legislations and policies from both the EU and the ECB to assist the recovery of the crisis. The words of the current ECB president Mario Draghi resonate with these responses to the crisis stating that ‘[w]ithin our mandate, the ECB is ready to do whatever it takes to preserve the euro.’45 The introduction of the SSM in 2012 sees an extension of the ESCB’s mandate through the allocation of the task of prudential supervision to the ECB by the Council.
The Euro Crisis and the Introduction of the Single Supervisory Mechanism
The midst of the euro crisis in 2012 revealed a decrease of a level playing field among providers of financial services, whose imbalances were caused by the widening of return spreads for euro area government bonds, and increasing divergence of capital market rates across the euro area. These circumstances damaged confidence in the sustainability of the banking sector. The answer to resolving these imbalances clearly pointed towards the need of prudential supervision, but only if other alternatives would prove less effective.46 In light of this analysis, centralising supervision was the best option available to provide a means in progressing financial stability, and avoid further calls for the taxpayer to support banks.47 Talks were centred around establishing an entirely new body that would be responsible for the supervision, but such establishment would have required a change in the treaties in order to transfer policy powers to a new body.48 The most readily available option was for the Council, after consulting the Parliament and ECB, to use its power under Article 127(6) of the TFEU to enact new legislation that would confer specific tasks to the ECB, concerning the prudential supervision of credit institutions. Upon the decision made by the Eurozone Heads of State in their 29 June 2012 Euro Area Summit Statement, the Commission proposed for the new regulation on the Single Supervisory Mechanism in September that same year to the Council and European Parliament for adoption. The aim of the Commission was to shift the supervision of banks from national level to European level and appoint the ECB with this task. The Commission proposed for the ECB to assume its new position as prudential supervisor from 1 January 2013 and complete the phasing-in of the
44 Op Cit. 34 Article 12.1
45 Draghi M., (President of the European Central Bank), [‘Speech on Stability of the Euro’], Global Investment Conference, London, United Kingdom, 26th July 2012
46 Troger T., ‘The single supervisory mechanism - panacea or quack banking regulation? Preliminary assessment of the new regime for the prudential supervision of banks with ECB involvement’, E.B.O.R. (2014), 15(4), p456-8
47 Busch D. and Ferrarini G., European Banking Union (Oxford: OUP, 2015) p95-7 48 Ibid p100
banks subject to the mechanism by 1 January 2014.49 Criticism of this proposal, resulting from the adoption of the regulation by the Council, involved fears of the potential conflict between the new task entrusted to the ECB and its primary role to maintain monetary policy. Although, with this fear already in mind, the Council adopted measures in the regulation to ensure both monetary policy and prudential supervision remained separate. They included articles on independence, separation from monetary policy and professional secrecy.5051 The mechanism entered full operation from 3 November 2014 and now aims to streamline supervision of all banks participating to the scheme eliminating national imbalances and weak coordination among the national central banks that make up the ESCB. The framework of the regulation establishing the SSM will be explained below and emphasis on the accountability provisions will be discussed later in this section.
The Single Supervisory Mechanism
The SSM is automatically applicable to all Member States whose currency is the euro. The Member States that have not adopted the euro either by derogation according to Article 139 of the TFEU, or via an ‘opt-out’ mechanism (the United Kingdom and Denmark), are eligible to ‘opt-in’ to the SSM to be supervised by a regime of ‘close cooperation’ that will be different than its counterparts in the euro area. The regulation automatically applies to Member States in the euro area and their subjection to the supervisory mechanism is irreversible. Non-euro Member States retain the option to withdraw, should they feel the decisions the ECB makes that require implementation by the Member State’s national supervisor conflict with national interests. This will relinquish the ‘close cooperation’ agreement the Member State will have with the ECB, and the Member State will not be able to participate again should it wish to do so for three years following termination. 52
The SSM operates on what can be described on a two-tier scale. Two categories of entities that fall under the scope of the SSM Regulation are defined and allocated to the appropriate tier, either on what may be best described as a ‘less significant supervised entity’ (LSSE) or a ‘significant supervised entity’ (SSE). The odd terminology to define an entity as a LSSE or SSE found in the SSM Framework Regulation (ECB/2014/17) adopted by the ECB to support the application of the SSM, may have been intended to prevent forms of psychological reactions, but expresses the diversity of banks, credit institutions and other
49 ‘Commission proposes new ECB powers for banking supervision as part of a banking union’, (2012) EU Focus, 300, 1-4
50 Op Cit. 47 p101
51 Op Cit. 7 Articles 19, 25 and 27 52 Op Cit. 47 p101-2
entities existing across the Union, that are not defined purely under a quantitative criteria.53 54 The two categories then allow the ECB to directly supervise those entities defined as a SSE and the national supervisors of each respective Member State will supervise the LSSEs.
Regarding the scope of the regulation identifying which banks will be subject to the mechanism, the SSM will apply to all ‘credit institutions’ as a first step. ‘Credit institutions’ is defined on a European level that consists of an institution receiving deposits from the public in order to use these for granting credits for its own account.55 It is this definition that will apply and will exclude various definitions that could apply differently amongst Member States that may define credit institutions as banks that receive deposits but may not grant credits. 56 For those bodies falling under this definition, the distinction between the SSE and LSSE categories will be made. For an entity to be considered a SSE, its total assets must exceed €30 billion, its ratio of assets over its home Member State’s GDP must exceed 20 per cent, and that the entity’s national supervisor considers the entity to be domestically significant, upon which the ECB confirms this consideration.57 Exceptions are also possible but only on a case-by-case basis.58 The ECB is able to consider on its own initiative that a credit institution with subsidiaries across several Member States may qualify as a SSE when its assets of the subsidiaries represent a significant part of an institution’s total assets.59 This allows large multinational banks and other entities to be subject to one supervisor and not multiple national supervisors. All other entities that do not meet the criteria to be considered a SSE are considered LSSEs, and therefore fall under the supervision of the national supervisor.60 For institutions from Member States that have not adopted the euro and intend to opt in to the SSM, the ECB will supervise the SSE considered in that Member State and the national supervisor will govern the LSSE. For institutions from non-euro Member States with subsidiaries in participating Member States, those will be considered as separate individual entities.61 The SSM Framework Regulation provides the procedure for the ECB to determine the appropriate status of a credit institution including assessments on size, influence on economy, and cross border activity. 62 The procedure contained in the regulation is followed before the ECB publishes its list of institutions that qualifies as a SSE.63
The tasks of the ECB as prudential supervisor are contained in Article 4(1) of the SSM Regulation. In general, the ECB will act as a national supervisor, but will only act on the basis of EU law that is 53 See Regulation 468/2014 Article 2(7) and (8) where a ‘LSSE’ is defined and (16), (17) and (18) where ‘SSE’ is defined. The abbreviations are derived from Busch and Farrarini’s work to simplify the division of the categories (see footnote 54).
54 Op Cit. 47 p103-4
55 Op Cit. 7 Article 2(3); Regulation 575/2013 Article 4(1)(1) 56 Op Cit. 47 p108 57 Op Cit. 7 Article 6(4) 58 Op Cit. 53 Articles 70-72 59 Op Cit. 57 60 Op Cit. 47 p109 61 Op Cit. 53 Article 41 62 Ibid Articles 39-79 63 Ibid Article 49
transposed in the Member State concerned. These tasks entrusted for the ECB to carry out include authorising credit institutions and withdrawing authorisations if necessary, in respect of all institutions in the EU participating to the SSM, imposing requirements on credit institutions to maintain robust governance arrangements and internal control mechanisms, carrying out supervisory reviews and stress tests on participating banks, and conduct supervisory tasks on recovery plans with early intervention if necessary, amongst other tasks listed in the article. The ECB also has powers to carry out investigations on credit institutions, request information, perform on-site inspections and impose macroprudential measures.64
What comes with the tasks for the ECB to perform, and its powers that can be utilised as mentioned above, are the decisions that implement the functioning of the SSM in achieving its overall objective. The legislators of the SSM Regulation established a new decision making body named the Supervisory Body, responsible for making the decisions on how the prudential supervision will be carried out. As this body, in cooperation with the Governing Council, is responsible for executing the performance of the ECB in its role as prudential supervisor, its decisions are subject to the accountability measures that will hold the ECB to account. The framework of the Supervisory Body and the accountability provisions for the decisions made under the SSM will be discussed below.
The Accountability of the Decision-Making under the SSM Regulation
The Supervisory Body is internal to the ECB and is composed of six professional members of the ECB, and representatives of the nineteen participating Member States automatically subscribed to the SSM. The representatives of the ECB include the Chair that is not a member of the Governing Council, the Vice-chair also a member of the Executive Board, and four other representatives of the ECB. All decisions are made by simple majority, apart from the adoption of new regulations alluding to a dominant influence from the representatives of the Member States over the six ECB representatives. When the Supervisory Board has adopted a decision, it is then sent to the Governing Council for their opinion. If the Governing Council does not object to the decision within ten days, the decision is approved and then implemented. Should the Governing Council object to a decision, the matter will be remanded to the Supervisory Board accompanied with reasons for objection.65
As specified in recital [85] of the SSM Regulation, the Commission had made it known that the democratic accountability of the ECB under the SSM required strengthening. What has resulted are explicit measures contained in Article 20 for the accountability of the ECB as prudential supervisor. The ECB is accountable to the European Parliament and the Council for the implementation of the SSM Regulation as stated under Article 20(1). The ECB will annually submit reports on the execution of its tasks as prescribed by the SSM Regulation to the Parliament, Council, Commission, Eurogroup and national parliaments of the 64 Op Cit. 47 p111
participating Member States to the mechanism.66 The Chair of the Supervisory Board shall also present the annual report to the European Parliament, Eurogroup, and any representative of a non-euro Member State that is participating to the mechanism.67 Upon request by the European Parliament, the Chair of the Supervisory Board shall attend a hearing concerning the execution of the ECB’s supervisory tasks, and reply orally or by writing to questions submitted by the Parliament or the Eurogroup.68 The Chair of the Supervisory Board may also be called to hold confidential oral discussions with the Chair and Vice-chairs of the competent Parliament Committee, and Committee on Economic and Monetary Affairs of the European Parliament, but on the circumstances necessary for the Parliament to carry out its functions under the TFEU.69 In order for these discussions to be held, an agreement is to be concluded between the European Parliament and ECB determining the practical modalities for the ECB to hold these discussions, as well as other reporting and answering requirements to uphold its accountability towards the Parliament.70 The ECB will also be subject to investigations by the European Court of Auditors to examine its managerial efficiency under the SSM and the European Parliament by virtue of its powers under the TFEU.71 National Parliaments also have the opportunity to submit observations on receipt of the annual report, and request the ECB to reply to any observations made. Furthermore, a national parliament of a participating Member State may invite any member of the Supervisory Board to participate in an exchange of views on the supervision of the concerned Member State.72
Further to the establishment of the accountability measures, a Memorandum of Understanding has been concluded between the ECB and the Council regarding its accountability towards that political body. Together with the interinstitutional agreement between the ECB and Parliament, they form agreements that uphold professional confidentiality requirements as stated in Article 20(8) of the SSM Regulation, as well as the procedures to hold exchanges of views and hearings.
These accountability provisions were enacted and utilised in a way for the European Parliament to address existing weaknesses of accountability of the ECB. The text of the March 19, 2013 tripartite agreement in the legislative procedure incorporated mostly all of its amendments to the draft SSM Regulation, and reinforced core principles for the operation of the accountability provisions.73 These are the provisions that subject the ECB to accountability for its actions and decisions as prudential supervisor under the SSM. How far the provisions subject the ECB to full accountability for the actions and decisions it makes within the powers granted by the SSM is what requires assessment, and to examine if these provisions overall lead towards a legitimacy of the ECB that verifies it as a valid EU institution.
66 Op Cit. 7 Articles 20(2) and 21(1) 67 Ibid Article 20(3)
68 Ibid Article 20(5) and (6) 69 Ibid Article 20(8)
70 International Agreement 2013/694/EU OJ L 320/1 71 Ibid Articles 20(7) and (9); See TFEU Article 226 72 Ibid Articles 21(1) to (3)
IV. The Evaluation of the SSM Regulation Accountability Measures
The evaluation of the accountability provisions of the SSM rests in the balance between the ECB’s subjection to accountability for its actions, and its independence that allows the ECB to act without political influence. It is important to remember that the tasks entrusted to the ECB, unlike the maintenance of monetary policy, requires a differentiated mechanism to ensure that the balance remains equal. The ECB’s Treaty given independence, Alexander argues, is inappropriate as a matter of policy for a supervisor of banks and credit institutions. Without the right accountability provisions, the ECB is likely to contravene principles of the rule of law.74 In answering the question whether the balance has been struck, there are commentators, as will be mentioned below, that argue that the accountability provisions are balanced with the independence of the ECB and both are in proportion with each other, or that the accountability provisions are restrictive, and the ECB’s independence remains overbearing within the performance of its tasks. The arguments made on both sides of this question will be illustrated below, and the final evaluation of the provisions based on the submission of this paper will follow.
The Criticisms of the SSM Accountability Measures
The European Union Committee of the House of Lords in the UK critiqued the accountability of the ECB under the SSM in its report made in 2012-13. The Committee expressed great concerns over the concentration of power in to one institution, and one member stated that this granting of power was unhealthy for democracy. The Committee stressed the need for proper accountability at the national level and not just reserved at EU level. The Committee also recognised that interaction with the Parliament and Council had to be more frequent than the case would be when the ECB acts under monetary policy, and that the ECB will need to be totally open about its supervisory decisions. The Committee recognised that the ECB would become an exceptionally powerful institution when accepting to undertake the supervisory tasks at hand, and proposed four principles of accountability that needed to be addressed. They advised that the ECB would need to be fully answerable to the Council and European Parliament for its decisions, and that a streamlined mechanism of accountability to national parliaments be established, relative to the impact decisions will have on certain Member States. Also, an effective appeals system should exist, running in a timely manner to prevent credit institutions appealing decisions to the ECJ as the only option of legal redress. Finally, that the accountability mechanism should be able to operate speedily in time of crisis.75
74 Ibid p171
75 House of Lords, European Union Committee, ‘European Banking Union: Key Issues and Challenges’ (7th Report, London, Stationary Office, 2012-13) p21-2
These criticisms were made during the time the Commission sent the proposal for the enactment of the SSM Regulation, therefore, they do not directly address the provisions that currently exist from the result of the legislative procedure. Whilst on the one hand the SSM Regulation explicitly states the ECB will remain accountable to the Council and Parliament, and that there are at least reporting and answering mechanisms established to national parliaments, the Regulation does not provide for an appeals process for credit institutions to appeal decisions finalised by the Governing Council directly to the ECB.76 It is also yet to be seen if the current mechanisms are able to operate on a speedy basis but one could say that annual reporting does not allow for acute accountability in crisis.
Wolfers and Voland criticise the accountability provisions in that they are unlike any kind of accountability mechanism that would be imposed on the national level. They suggest that the external control of the ECB is rather lenient as for the most part the SSM merely establishes requirements for reporting with opportunity for investigation by the Parliament. The SSM does not guarantee the kind of accountability Member States would impose on their own regulatory agencies, namely in that the EU and Member States do not have a right to give instructions to the ECB in its role as supervisor as prohibited by Article 19 of the SSM Regulation.77 Although this point is understandable for the protection of the ECB’s independence, it is also not hard to see why it may be frustrating for national parliaments to be unable to have a say in what may be discussed in the Supervisory Board meetings, especially when a representative of the national parliament’s Member State is taking part.
Wolfers and Voland make the point that the ECB is more dependent on the internal review performed by the Administrative Board of Review established by the ECB under Article 24 of the SSM Regulation that assesses the conformity of decisions made by the Supervisory Board with the SSM, than external review or control primarily by the Parliament or Council.78 Although, the external control that may be exhibited by the Parliament and Council is through indirect means for the appointment and dismissal of the Chair and Vice Chair of the Supervisory Board, all of which however, are acted on the proposal made by the ECB.79 Altogether, if the forms of accountability delineated by Mashaw were to be applied here, then according to Wolfers and Voland the SSM Regulation creates a preference for administrative accountability to the extent that internal reviews allow scrutiny of Supervisory Board decisions over political accountability whereby the external political bodies are limited in their reviewability of these decisions.
These criticisms demonstrate the problem the ECB independence creates by preventing external actors to communicate properly with the ECB and scrutinise its actions as prudential supervisor. To refer back to the idea of adequate accountability, Alemano points out that the idea that good accountability is
76 Op Cit. 7 Article 24(5) ‘A request for a review against a decision of the Governing Council as referred to in paragraph 7 shall not be admissible.’
77 Wolfers B. and Voland T., “Level the playing field: The new supervision of credit institutions by the European Central Bank” Common Market Law Review (2014) 51, 5 p1480-2
78 Ibid
attainable through participation and consultation is heavily disputed.80 What Wolfers and Voland demonstrates is that the SSM only goes so far as reporting with opportunity for investigation. Therefore it is difficult to state that the accountability measures in the SSM regulation are adequate when mere reporting, limited consultation, and investigation is all that the regulation provides to hold the ECB accountable.
Proponents for the Adequacy of the SSM Accountability Measures
As the enforcement of the SSM Regulation is still in its early stages, it remains to be seen whether the accountability provisions and ECB independence are balanced in practice. However, Moloney suggests that the aim towards an ‘output legitimacy’ through the recognition of increased accountability controls required for the ECB by the Commission, suggests an optimism for their function. The accountability provisions under the SSM in nature, as opposed to the Treaty based accountability provisions that serve for the ECB’s role in monetary policy, are more intrusive to reflect the immense power the institution has gained. The range of institutional reporting obligations provides numerous channels for the ECB to be challenged on its objectives that as a result, improves its transparency.81 Lo Schiavo comments that the SSM Regulation reaches an appropriate level of reporting and in general, the legislators of the regulation have been keener to impose appropriate accountability measures, than stated by the Commission on its proposal for the enactment of the regulation.82 Following these observations, Ehrmann et al.’s working paper on EU citizens’ trust in the ECB found that over half of the respondents in their survey, expressed a level of trust in the ECB which was more than any other EU institution, but also understandably fell following the euro debt crisis. One of the key elements they found for increasing trust, is to increase the public’s knowledge about the institutions and its policies.83 Tying this paper with Moloney’s argument means that the increased number of channels through which the ECB reports will improve the transparency and garner more trust, at the very least, from the national level. Although, Kuile et al. expresses a concern that the Memorandum of Understanding and interinstitutional agreement between the ECB, Parliament and Council that elaborates on the processes to uphold the accountability measures, are subject to confidentiality and professional secrecy requirements as Article 20(8) of the SSM Regulation states which may act to hinder transparency.84
80 Alemano A., “Unpacking the principle of openness in EU law: transparency, participation and democracy” European Law Review (2014) 39(1) p85
81 Moloney N., “European Banking Union: Assessing its Risks and Resilience” Common Market Law Review (2014) 51, 6 p1636-8
82 Lo Schiavo G., ‘From National Banking Supervision to a Centralized Model of Prudential Supervision in Europe: The Stability Function of the Single Supervisory Mechanism’ Maastricht Journal of
European and Comparative Law (2014) 21(1) p125
83 Ehrmann M., Soudan M., and Stracca L., “Explaining EU Citizens’ Trusts in the ECB in Normal and Crisis Times” Working Paper Series No 1501/December 2012
Moloney reasons that although the European Parliament’s ability to investigate and conduct hearings with the ECB may challenge its independence, which remains to be seen, the independence granted to the ECB under the SSM Regulation can be regarded as a different kind of independence that is afforded to the ECB for its maintenance of monetary policy. An explanation for this is that the independence as stated in Article 19 of the SSM Regulation has been drafted by the legislator and as such, remains free to be amended or repealed by the legislative bodies of the EU. The independence prescribed to the ECB by Article 130 of the TFEU on the other hand, may not be amended so far as avoiding the procedure to change the treaties is concerned, which would require ratification by all Member States. The independence granted by Article 19 of the SSM Regulation is designed to prevent political pressure on the ECB for the purposes of prudential supervision. Therefore, as far as any threat to independence is concerned, at least by the European Parliament, it shall be relevant to the supervisory independence of the ECB and not its independence of defining monetary policy established by the TFEU that has been fiercely protected.85 As the Council has been careful in providing accountability measures that do not encroach upon the ECB’s independence under Article 19, then it can be said that the balance between accountability and independence has been struck.
Kuile et al. supports this argument by separating supervisory independence from monetary independence and that the separation of these two affects the type of accountability afforded to the particular type of independence.86 Kuile et al. also recognises that although on face value the coexistence of accountability and independence creates tension, sound accountability arrangements will rather complement the independence of banking supervision.87 Therefore, as long as the accountability provisions are sound, the independence is not encroached upon and the balance is struck. Kuile et al. provide an example of what may constitute a sound arrangement, whereby the supervisory body is controlled by the accountability mechanism, but the forum to whom the supervisor is accountable, is unable to exercise an undue influence over the supervisor. However, such an arrangement excludes the possibility for coercion of the conduct committed by the supervisor or any other remedy to be applied by the forum. Although, Kuile et al. states that the current arrangement satisfies this scenario through Bovens’ stages of accountability, save for the final stage where the forum will pass a judgment and consequences may follow. 88 The accountability measures allow for the provision of information and debate of the information satisfying the first two stages of Bovens’ theory. Then to account for the absence of consequences, Kuile et al. explains how the accountability measures actually fill this gap. There are no formal mechanisms to sanction the ECB that exist in the SSM Regulation by an external government body by way of political accountability. Despite this, the indirect pressure the agent, that is the ECB, can experience by explaining its conduct to the principal, which could be any of the forums listed in the SSM Regulation to which the ECB has to report, would have a ‘prophylactic’ effect. In other words, the requirement of reporting through so many channels 85 Op Cit 81
86 Op Cit 1 p165 87 Ibid p166 88 Ibid
will have a preventative effect on misconduct of the ECB.89 Although falling short of sanctioning, nevertheless, the balance between adequate accountability and protecting independence is struck.
The Application of the Accountability Criteria to the Accountability Measures Under the SSM: Analysis Kuile et al.’s justification that Bovens’ three stages of accountability are satisfied despite the omission of formal sanctioning, or at least consequences that follow, will be disputed in this analysis. However, the standard of accountability identified earlier in this paper will need to be applied to dispute Kuile et al.’s assertion and justify why the existence of consequences in an accountability mechanism is required, insofar as the current mechanism does not match up to the powers the ECB has gained that are protected by its independence.
As Kuile et al. have stated, the accountability provisions in the SSM Regulation satisfy the first two stages of the accountability process according to Bovens. To illustrate this, the first stage is the obligation of the actor to provide information to the forum. This clearly exists in the accountability provisions of the SSM Regulation where under Article 20(2), (3) and (4) and Article 21(1) the ECB is obliged to submit and present reports to the European Parliament, Council, Commission, Eurogroup, and national parliaments. The second stage of the accountability process identified by Bovens is for the possibility of debate and or interrogation to provide a form of answerability from the actor to justify the conduct to the forum. This is also clearly provided for under Article 20(5), (6), (7), (8) and (9) and Article 21(2) and (3). These articles provide for the exchange of information and views, hearings and investigations by the European Parliament, Eurogroup national parliaments and European Court of Auditors to interrogate the ECB, and question the adequacy or legitimacy of the information it has provided. The ability for one of the bodies that make up the forum to pass a judgment on the justification on the ECB’s conduct to fulfil Bovens’ final stage does not however exist in the SSM Regulation as Kuile et al. points out. Strictly speaking, this means that the provisions to submit the ECB under accountability for its actions as prudential supervisor are incomplete and the ECB’s independence prevents a measure for an external body to pass a form of judgment to be implemented. However, if we were to accept Kuile et al.’s justification that the reporting and answering obligations provide a way for the ECB to acknowledge the forum’s views, then it warrants analysis of the accountability mechanism via the three Bovens criteria to determine that they achieve the aims of upholding accountability mechanisms, and strike balance with the ECB’s independence.
The first question of the Bovens criteria to assess the adequacy of an accountability mechanism examines the degree that the mechanism enables the democratically legitimised forum to evaluate the behaviour of the actor as a form of democratic control. The ability for the European Parliament to request a hearing, and question the ECB with expected replies along with the Eurogroup, reveals permissibility for
evaluation by a democratic forum over the ECB’s supervisory tasks. The possibility for the Parliament to hold an investigation within the ECB over its supervisory tasks also provides a means to evaluate the performance of the ECB and also reveals an element of democratic control, as the ECB is obliged to ‘sincerely cooperate’. The extension of the reporting made from the ECB to the national level rather than remaining contained at EU level can be said to widen the opportunity for a democratic body to evaluate the ECB, especially for the option to request a response to observations, and hold an exchange of views under Article 21. Whilst as already stated, there are no provisions to pass a judgment or sanction on the supervisory actions of the ECB. The ability for the democratic body to encourage a modification of behaviour according to their preferences from the evaluation is prevented. The provisions reveal that the opportunity for evaluation by the democratic forum is considerably wide, given that bodies from the EU and national level can submit questions, but that evaluation does not provide for the option to influence the actor’s behaviour owing to the protection of the ECB’s independence. One does wonder whether the opportunity to evaluate the ECB’s actions as prudential supervisor serves a real purpose in the end.
Following the ECB’s independence restricting the opportunity for the democratic forum to modify the ECB’s behaviour, this necessitates the assessment under Bovens’ next criterion that the accountability mechanism curtails the abuse of power and privilege, which may lead to corruption. This is the constitutional aspect of the assessment. It is remembered that the decisions made by the Supervisory Board are submitted to the Governing Council for approval within a ten-day period. The Governing Council may approve the decision by making no objection, or send the decision back to the Supervisory Board with reasons for the objection. The ability for the Governing Council to review the Supervisory Board’s decisions operates as a check for the decisions that are made and they are able to ensure that the decisions made do not interfere with monetary policy.90 However, the Vice-chair of the Supervisory Board, which is a member of the Executive Board, has a seat in the Governing Council.91 This then means the legitimacy of the decisions made in both bodies is a cause for concern when the same representative is present in both bodies. The establishment of the Administrative Board of Review under Article 24 of the SSM Regulation also constitutes a check to the conformity of the decisions made by the Supervisory Board, but by only acting on appeal of a Supervisory Board decision before it is adopted by the Governing Council from a participant bank. It appears that the ability to comprehensively review all decisions made by the Supervisory Board is restricted. When the Governing Council has adopted a decision, it is only reviewable by the ECJ. 92 The compatibility with Bovens’ second criterion does exist, however, with concern towards the ability to check the decisions made by the Supervisory Board extensively and independently. However, with the ECB’s subjection to audits by the European Court of Auditors as prescribed under Article 20(7), this should provide the means for an independent body to examine the actions taken by the ECB as prudential supervisor and ensure they remain efficient.
90 Op Cit 47 p113 91 Ibid
