Draghi sets sights on capital markets at SSM inauguration

Mario Draghi believes the governance model underpinning the Single Supervisory Mechanism (SSM) can offer important lessons for the integration of Europe's capital markets – the next step in creating a single financial market.

The European Central Bank (ECB) president, speaking at today's inauguration of the SSM, said the introduction of a new system for banking supervision was not the end of the road to integration.

"We need to further think about how we can improve our union, not only in the banking sector but also in relation to capital markets and in the economic and fiscal realms," he told an audience in Frankfurt.

"Our responsibility towards the people of this continent is indeed to put in place a sustainable economic model that helps to increase employment and boost growth. I believe the experience of setting up the SSM and the banking union can inspire us in this respect."

He broke down the SSM governance model into three components: a political agreement at the European level based on well-defined objectives; a European authority with strong enforcement powers (the ECB); and an "integrated system reflecting Europe's diversity".

"This is the approach of competition policy, monetary policy and single-market policies," he said. "In the future, we can learn from this experience as we progress towards economic union and capital markets integration."

The SSM came into force on November 4, but the ECB held an inauguration ceremony for the system today. Herman Van Rompuy, the European Council president, described it as the "biggest leap forward since the creation of the euro".

Van Rompuy, who Draghi praised for "masterfully conducting the discussions between European leaders, which led to the creation of the banking union", said the "next frontier will be to move towards closer economy policy cooperation".

Danièle Nouy, the SSM supervisory board chair, briefly outlined how Europe's new supervisors would go about their work – stressing they were "prepared to be assertive with the banks we supervise" – before turning her attention to what more needs to be done.

She argued that if basic financial regulation in European countries remains fragmented than "there is no point in converging supervisory practices". For her, the new banking regulatory framework is an "undeniable improvement", but there is "still room for progress to ensure consistency and comparability of capital ratios".

Earlier this month, Basel Committee chair Stefan Ingves argued the consistent national implementation of global standards was necessary to realise the "full benefits" of the Basel III accord – a view Nouy shares.

"The Capital Requirements Directive contains too many national options and discretions, including on the speed of its implementation into the fully phased-in Basel III definition," she said today. "To deliver consistent supervision, we need fully harmonised European regulation."