The past two decades have witnessed both tremendous change and growth in the financial sector in countries across the globe. At the same time, however, many countries in the world have experienced banking crises, sometimes leading to costly bank failures and overall disruption in economic activity.

The changes in the banking landscape and the variability of global economy have focused policy makers’ attention on the appropriate role and structure of banking supervision and regulation. As countries make different choices in these regards, it is useful to examine if there are any fundamental principles, that countries can follow to insure financial stability and growth.

The European Central Bank (ECB)* is the central bank for the euro and administers monetary policy of the Eurozone, which consists of 19 EU member states and is one of the largest currency areas in the world. The Single Supervisory Mechanism (SSM) is the mechanism which has granted the ECB its supervisory role to monitor the financial stability of banks based in participating states.

Assessing and strengthening banking supervision is important, given the crucial role of supervision in promoting financial stability and minimizing the costs of banking crises; such as disruptions and the financial burden of potential failure in economic activity. In addition, strong banking supervision enhances the relevance of the banking system to the economy, at large, as only a stable and robust banking system will be capable of contributing maximally to economic growth and poverty alleviation. But how does banking supervision work, in the first place?

*European Central Bank (ECB): https://en.wikipedia.org/wiki/European_Central_Bank

This is the “supervisory circle”, as described by the European Central Bank (ECB).

Eirini Papadopoulou (GR)