Supervision

Abstract

Abstract After a brief overview of the intergovernmental negotiations on the Single Supervisory Mechanism (SSM), the chapter elucidates national preferences on the scope of ECB direct supervision that was of primary importance during the SSM negotiations. The chapter then discusses the preferences of the UK government and other euro area outsiders with regard to their accession to the SSM (and Banking Union). In order to explain national preferences on the SSM, two main factors are considered. First, moral hazard concerns pushed otherwise disinterested governments—notably the German—to accept the need for supranational supervision, especially for member states in current or potential need of financial support for banks. Second, the internationalization of national banking systems explains interest in supranational supervision. Countries in which the ‘domestic reach of internationalization’—mainly through consolidated and semi-consolidated groups of alternative banks—was high favoured a low threshold for direct ECB supervision (and the reverse).