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German bank not too low-risk to be supervised by ECB

German bank Landeskreditbank Baden-Württemberg has lost a court battle after the General Court of the European Union dismissed its claim that it should not be supervised by the European Central Bank (ECB).17 May 2017

The German bank had claimed that the ECB was wrong in classifying it as a 'significant entity' and therefore subject to direct supervision by the ECB under the Single Supervisory Mechanism (SSM) framework. Due to the low degree of risk in its profile, the bank said, it should have been classified as a 'less significant' entity, supervised by the German national authority.

The SSM framework includes rules for how the ECB should supervise eurozone banks. These include the creation of joint supervisory boards made up of ECB representatives and national competent authorities (NCAs) of participating EU countries.

The General Court dismissed the action. Any bank with assets of over €30 billion is classified as a significant entity and therefore subject to direct supervision by the ECB unless particular circumstances justify a different classification, it said.

The classification can only be avoided if it can be shown that supervision by the national authorities would be better able to meet the objectives and principles of the rules, including the need to consistently apply high supervisory standards, the General Court said.

Landeskreditbank Baden-Württemberg had not argued that supervision by the German authorities would be better, but only that it would be sufficient, the Court said.

Banking regulation expert Michael Ruck of Pinsent Masons, the law firm behind Out-Law.com said: "A national authority is likely to be a more positive relationship as national interests may be more aligned, while the ECB is likely to bring greater levels of bureaucracy into the relationship as both the ECB and national regulator will be involved in the supervision of this bank."