1. Why and How it was Created

Context: 2011-2012 sovereign debt crisis exposed that national supervision failed. German banks supervised loosely by BaFin, Spanish cajas by Banco de España, with regulatory forbearance. The doom-loop: weak banks -> sovereign bail-out -> sovereign downgrade -> weaker banks.

European Council Conclusions June 2012: "break the vicious circle between banks and sovereigns."

Legal Basis - Controversial:
Council Regulation (EU) No 1024/2013 of 15 Oct 2013, adopted under Article 127(6) TFEU:

"The Council may confer specific tasks upon the ECB concerning policies relating to the prudential supervision of credit institutions"

This article was never intended for a full supervisor. Germany argued it required Treaty change, but political urgency prevailed. Operational since 4 November 2014 via ECB Framework Regulation 468/2014 (SSMFR).

Architecture:

• Not a distribution of competences but a decentralized implementation of exclusive ECB competence.
• ECB directly supervises ∼110 Significant Institutions (SIs) - 82% of Eurozone banking assets - based on size >€30bn, cross-border importance, or top 3 in member state.
• National Competent Authorities (NCAs) supervise ∼2,100 Less Significant Institutions (LSIs) under ECB oversight and instructions.
• ECB can at any time take over direct supervision of any LSI - Art. 6(5)(b).

2. What Powers were Assumed? Art. 4 SSM Regulation

Tasks conferred exclusively to ECB:

1. Authorize credit institutions and withdraw authorizations
2. Assess qualifying holdings (owners)
3. Ensure compliance with own funds, securitization, large exposures, liquidity, leverage
4. Supervise consolidated, conglomerates
5. Carry out Supervisory Review and Evaluation Process (SREP) - Pillar 2 add-ons
6. On-site inspections, investigatory powers Art. 9-13

And crucially: Power to apply national law transposing EU Directives - Art. 4(3) SSMR. ECB must apply German KWG, Spanish Ley 10/2014, etc., when CRD IV is a Directive, not Regulation. First time EU institution applies national law as matter of EU law.

3. Landmark Case Law - 10 Years of SSM

A. Constitutional Foundation - Landeskreditbank Case

T-122/15 Landeskreditbank Baden-Württemberg v ECB and C-450/17 P [Grand Chamber 8 May 2019][2017]

This is the constitutional charter of the SSM.

Facts: German promotional bank (Förderbank) L-Bank argued it was not significant, should remain under BaFin, ECB classification as significant was disproportionate.

General Court and CJEU held:

"The ECB is exclusively competent to carry out the tasks stated in [Art. 4 SSMR]. The NCAs are not vested with autonomous competences... When NCAs supervise LSIs, they do so as decentralized implementation of ECB exclusive competence."

Consequences:

1. ECB has ultimate responsibility for prudential supervision over ALL institutions within SSM, irrespective of classification as significant or less significant.
2. NCAs are "assistants" of ECB.
3. German Constitutional Court (BVerfG) 30 July 2019 SSM/SRM judgment upheld this reading - said framework does not exceed EU competences, following CJEU.

B. Composite Procedures - Berlusconi and Fininvest

C-219/17 Silvio Berlusconi and Fininvest v Banca d'Italia and IVASS [Grand Chamber 19 Dec 2018]

Facts: Banca d'Italia opposed Fininvest increasing qualifying holding in Banca Mediolanum due to Berlusconi's criminal conviction for tax fraud. Draft proposal sent to ECB, ECB refused.

Berlusconi challenged Banca d'Italia preparatory act in Italian TAR.

CJEU held - Doctrine of Single Judicial Review:
Within SSM, national draft decisions preceding a final ECB decision are subject to single judicial review at EU Courts, precluding national jurisdiction.

National measure is preparatory, not final. Only ECB decision produces legal effects. Therefore only EU courts have jurisdiction.

This overturned traditional administrative law. Applies to all qualifying holdings, authorization, withdrawal procedures. AG Campos Sánchez-Bordona stressed: Under SSM, ECB is entitled to substitute NCAs and replace them in application of national law.

C. Limits of Powers and Due Process

Joined Cases C-152/18 P, C-149/18 P etc. Trasta Komercbanka and Others v ECB:
Latvian bank challenged ECB withdrawal of license after Latvian FKTK proposal. CJEU held bank in liquidation still has standing, ECB must independently assess even if based on NCA proposal, and must respect right to be heard.

T-913/16 Fininvest / Berlusconi v ECB:
Clarifies scope of ECB assessment of suitability of shareholders - must assess reputation on EU-wide basis, not just national criminal law.

C-52/17 VTB Bank (Austria) AG v Finanzmarktaufsichtsbehörde [19 Dec 2018]:
Austrian FMA still competent for AML supervision - SSM does NOT transfer AML or conduct supervision. Important limit.

Crédit Mutuel Cases: T-123/16, C-144/20 etc.
French cooperative group challenged ECB SREP decision imposing consolidated prudential requirements. CJEU upheld ECB power to supervise at highest consolidation level, even overriding French cooperative structures.

C-481/19 DB v Consob-type but for SSM:
ECB supervisory sanctions must respect privilege against self-incrimination.

D. Application of National Law

C-389/21 P ECB v Crédit Lyonnais:
ECB excluded certain exposures from leverage ratio under French transposition of CRR. CJEU held ECB interpretation of national law is subject to full EU judicial review, but must interpret national law as national courts would.

This shows paradox: ECB applies national law but CJEU is final arbiter of its meaning.

4. Effectiveness and Critique

Strengths confirmed by case law:

1. Uniformity: Landeskreditbank ensures one supervisor, one rulebook. SREP scores now comparable across Spain, Germany, Italy.
2. Independence: ECB less prone to national forbearance - e.g., early action on Italian NPLs and Spanish Banco Popular.
3. Judicial Protection Model: Berlusconi doctrine avoids parallel litigation in 19 courts.

Weaknesses exposed in litigation:

1. Accountability Gap: ECB combines monetary policy + supervision behind same Governing Council. Plaintiffs argued Chinese wall insufficient. Court rejected but debate continues.
2. Fundamental Rights: Supervised entities complain of very limited intensity of review - Courts apply manifest error standard, defer to ECB complex economic assessment (approx 80 ECB decisions challenged, almost all dismissed).
3. Composite Procedure Opacity: Individual cannot challenge NCA preparatory act - must wait for ECB final act, even if flaw originates at NCA level.

Conclusion: The CJEU has been systematically pro-SSM integrationist. It reads Art. 127(6) broadly and supports ECB centralization beyond what drafters expected in 2013. The SSM is no longer "conferral of tasks" but creation of exclusive EU supervisory sovereignty, with NCAs as agents.