How does the ECB License Banks?


Not every company can call itself a bank. Banks take deposits from the public and they
grant credits. A bank’s controlled entrance into the banking
market is essential for the protection of savings of all European citizens, one of the
ECB’s core mandates. The ECB licenses all banks in the Eurozone,
regardless of their size and whether the ECB will directly supervise them or the national
supervisors will supervise them under the oversight of the ECB. Licensing has two main reasons:
First, it ensures that only robust banks which comply with all legal requirements can get
started and that they are well equipped to remain stable. Second, it ensures confidence in EU banks
as entities that are authorised and supervised to carry out their activities. The criteria for obtaining a licence to carry
out these activities are the same for all banks, whether they have a more classic business
model or a fintech business model. To begin with, the background and reasoning
for the license application are checked. The business plan must be viable and must
cover in detail the strategy and business model, including key financials. The applicant bank must meet the prudential
requirements, such as minimum capital. The proposed governance arrangements must
ensure sound and informed decision-making and provide the necessary checks and balances. The proposed future board members need to
be ‘fit and proper’ to carry out their function in the bank. Finally, the shareholders need to be assessed
for their suitability. The ECB and the national supervisor work together
in the process of granting licenses. This usually happens within a 6 to 12 months
maximum period. Typically, the supervisors and the applicant
bank hold regular meetings to discuss the bank’s application. These discussions often start even prior to
a formal submission by the applicant bank, in order to smoothen the process. If the national supervisor concludes the assessment
with a positive draft proposal to the ECB, it is up to the ECB to reject or to endorse
it. After the license is granted, the supervisors
will start planning and carrying out supervisory activities. The supervisors will monitor the bank’s
adherence to the plans and to any additional conditions. Most banks stay in business for a long time
but nevertheless their existence may come to an end, for example due to merger, voluntary
wind down or, exceptionally, through intervention by the supervisor. This may be the case if the requirements are
no longer met, when the bank is in a crisis. The ECB can then withdraw the license. Together, the ECB and the national supervisor
bring banks to life, allowing you to save, borrow, and invest more in our economy. More information can be found on the ECB webpage
and in the Guides to assessment of license applications.

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