1. Legal Foundation and Architecture

Legal Basis:

• Article 127(6) TFEU - enables Council to confer specific tasks concerning prudential supervision upon ECB. This was the only Treaty basis available without Treaty change.
• Council Regulation (EU) No 1024/2013 of 15 Oct 2013 - the SSM Regulation (SSMR)
• Regulation (EU) No 468/2014 - SSM Framework Regulation detailing practical modalities
• Complemented by CRR/CRD IV for substantive rules.

Operational Date: 4 November 2014 after 2014 Comprehensive Assessment.

Organizational Principle: Separation. ECB monetary policy and supervision must be organizationally separated - separate Governing Council vs Supervisory Board, separate staff, Chinese walls to avoid conflict. Supervisory Board prepares decisions, Governing Council adopts via non-objection procedure.

2. Division of Competences: Exclusive Competence Model

This is the core constitutional innovation clarified by case law.

The Model:
ECB has exclusive competence for all prudential supervisory tasks listed in Art. 4 SSMR over ALL banks in participating Member States (Euro area + opt-in close cooperation countries like Bulgaria, Croatia).

It exercises it in two modes:

a) Direct Supervision - Significant Institutions (SIs):
Criteria in Art. 6(4) SSMR:

• Size: total assets > €30bn
• Economic importance: assets > 20% of national GDP (unless <€5bn)
• Cross-border activity: significant cross-border assets/liabilities
• Direct public assistance: requested/received ESM/EFSF assistance
• Top 3 largest banks in each participating Member State

Currently ∼110 groups. Supervised by Joint Supervisory Teams (JSTs) - led by ECB coordinator, staffed by ECB and relevant NCAs. ECB directly takes all supervisory decisions: SREP, capital add-ons (Pillar 2), governance, fit & proper.

b) Indirect Supervision - Less Significant Institutions (LSIs):
∼2,000 banks. Day-to-day supervision by NCAs under ECB oversight, guidelines and regulations. ECB can at any time decide to take over direct supervision of an LSI to ensure consistent application of high standards. ECB retains direct competence for common procedures for both SIs and LSIs: authorisation and withdrawal of authorisation, and assessment of qualifying holdings.

Landmark Case: Landeskreditbank Baden-Württemberg v ECB

T-122/15 (GC 16 May 2017) and C-450/17 P (CJEU Grand Chamber 8 May 2019)

Facts: L-Bank, a German promotional bank (Förderbank), €70bn assets, classified as significant due to size. It argued it should be LSI because its risk profile is low and NCAs should remain competent for LSIs.

Issue: Is ECB competence subsidiary to NCAs for LSIs, or exclusive for all?

Ruling: CJEU confirmed General Court's exclusive competence reading.

• ECB is entrusted with ultimate responsibility for prudential supervision over all credit institutions within scope of SSM, irrespective of significance.
• NCAs do not have autonomous competence; they assist ECB and exercise decentralized implementation under Art. 6.
• Significance only determines intensity of exercise, not existence of competence. This dismissed German constitutional challenge (BVerfG 2 BvR 1685/14 - SSM/SRM case) and is called the constitutional legitimacy case of SSM.

Effect: Established SSM as truly single, not intergovernmental network.

3. ECB Supervisory Powers

Under Art. 4 and 9-13 SSMR, ECB has:

1. Authorisations: Grant/withdraw banking licence - common procedure.
2. Qualifying Holdings: Assess acquisition/increase of qualified holdings (>10%).
3. Ongoing Supervision: Conduct SREP, on-site inspections, require higher capital, liquidity, restrict business, remove managers.
4. Early Intervention and administrative penalties.
5. Investigatory powers: Request information, conduct investigations, on-site inspections.

Case Law on Scope of Powers

Crédit Mutuel Arkéa and Pilatus Bank cases: Courts shaped regulatory perimeter. What is a credit institution? What is a banking group for consolidated supervision? CJEU used teleological interpretation - if entity takes repayable funds from public and grants credit, it falls under ECB scope even if national law calls it differently.

Crédit Agricole and Crédit Lyonnais cases: Standard of review. Courts generally apply limited review for complex economic/technical assessments - checking manifest error, procedural guarantees, statement of reasons. But in fit & proper and governance cases, courts moved to more intensive review.

4. The Hardest Problem: ECB Applying National Law

Art. 4(3) SSMR: ECB shall apply all relevant Union law, and where Union law is Directives, the national legislation transposing it. And where Regulations grant options to Member States, ECB shall apply national law exercising those options.

This is unprecedented: EU institution applying national law as applicable law.

Case Cluster:

A. Crédit Agricole (2018-2020): First case where ECB applied French law transposing CRD. GC held ECB must apply national law exactly as national court would, but CJEU remains competent to interpret EU law background.

B. Berlusconi I - C-219/17 Silvio Berlusconi and Fininvest v Banca d'Italia and ECB (19 Dec 2018)

Composite procedure problem.
Banca d'Italia prepared draft opposing acquisition of qualifying holding in Banca Mediolanum by Fininvest, ECB adopted final decision.
Fininvest sued in Italy against preparatory act.

CJEU Grand Chamber:

• In composite procedures where EU act is final, only EU Courts have jurisdiction to review legality, even if defect originates in national preparatory act.
• National court must not review preparatory act independently; it can only refer questions on validity via preliminary reference, but annulment action must go to GC.
• Created doctrine of single judicial review for SSM.

C. Berlusconi II / Fininvest v ECB - Joined Cases C-512/22 P and C-513/22 P (2024)
ECB assessed suitability of qualifying holder using Italian law on integrity/honesty. CJEU: When ECB applies national law, it must interpret it in light of EU law, but if national law grants discretion incompatible with EU law, ECB must disapply it. Established that national options cannot undermine effectiveness of EU supervision.

D. Corneli - C-777/22 P (2024)
Question of ECB applying national procedural law for withdrawal of authorization. CJEU clarified limits: ECB cannot be required to apply national procedural rules that would make SSM ineffective. EU procedural autonomy of ECB.

5. Withdrawal of Authorisation and Locus Standi

Trasta Komercbanka - T-247/16 (renamed Fursin), T-698/16, and C-90/23 P (3 June 2024)

Facts: Latvian Trasta Komercbanka licence withdrawn by ECB 3 March 2016 following money laundering concerns flagged by Latvian FKTK. Bank entered liquidation. Liquidator (appointed after withdrawal) and shareholders sued.

Rulings:

1. Who can sue? GC Order 12 Sept 2017 held liquidator cannot represent bank if appointment is consequence of contested withdrawal and interests conflict - liquidation aims at winding up, not continuing banking activity. Shareholders have personal standing because withdrawal directly affects their property rights.
2. Merits: ECB can withdraw licence based on NCA proposal, but must conduct own assessment and respect proportionality and right to be heard.
3. C-90/23 P order dismissing appeal in T-698/16 confirms strict approach to standing for dissolved banks.

This line shapes all licence withdrawal litigation.

6. Sanctions and Fundamental Rights

Versobank AS v ECB (T-713/14 etc.) and VQ v ECB

ECB imposed administrative penalties for breach of large exposure limits and governance.

Courts introduced:

• Proportionality review: Even with limited review, penalty must be proportionate to breach, taking into account cooperation and gravity.
• Right to silence - DB v CONSOB C-481/19: Applied to SSM enforcement. A natural person subject to ECB sanctioning procedure can invoke right to silence (Art. 47, 48 Charter) when answers may lead to self-incrimination. Does not extend fully to legal persons.
• Ne bis in idem - Garlsson Real Estate C-537/16: Prohibits duplicate criminal and administrative proceedings for same facts if both are criminal in substance under Engel criteria. Relevant because some Member States have criminal banking law plus ECB administrative fines.

7. Supervisory Process and Judicial Protection

Practical flow:

1. JST conducts SREP, proposes decision
2. ECB sends draft, right to be heard (Art. 22 SSMR)
3. Administrative Board of Review (ABoR) can be seized within 1 month - internal quasi-court, non-binding opinion but leads to new decision
4. Appeal to General Court under Art. 263 TFEU within 2 months, then CJEU

Key procedural safeguards developed by courts:

• Duty to state reasons must allow bank to understand capital requirement calculation
• Access to file - but limited by confidential information
• Good administration - ECB must examine all relevant facts diligently

Takeaway for exams/moot:

SSM moved from "National supervision coordinated by EU" to "EU supervision implemented by nationals". Three litigation axes define it:

1. Legitimacy axis - Landeskreditbank (C-450/17 P): ECB exclusive
2. Judicial architecture axis - Berlusconi (C-219/17): Single EU review for composite procedures
3. Applicability axis - Corneli / Crédit Agricole / Berlusconi II: ECB as applier of national law, but EU law primacy
4. Standing axis - Trasta Komercbanka (C-90/23 P): Shareholders yes, conflicted liquidator no