Brussels: The European Central Bank assumed its role Tuesday as Europe`s banking watchdog under a new system aimed at shoring up the financial system to ward off another euro-threatening crisis.
As banking supervisor, the ECB will directly oversee the eurozone`s 120 largest banks, making up more than 80 percent of total banking assets in the single currency area.
Around 3,500 "less significant" credit institutions will continue to be monitored by the national authorities of the individual eurozone countries but under the broad oversight of the ECB.
The Single Supervisory Mechanism, or SSM, the new watchdog which the Frankfurt-based ECB takes on board, is one of the three main pillars of a future European banking union.
The others are a single banking rule-book and a Single Resolution Mechanism (SRM) in charge of winding up failing banks.
Until now, each member state had been responsible for supervising its own banks.
But Europe`s long financial crisis that nearly led to the collapse of the euro brought into sharp focus the varying degrees of success of that system.
German Finance Minister Wolfgang Schaeuble said in a statement that the SSM`s introduction had made the eurozone`s financial sector "more resistant".
"We are now better armed against imbalances in the banking system. That is also good news for tax payers."
EU financial services commissioner Jonathan Hill also welcomed the move.
"Greater confidence in European banks will encourage affordable lending to the wider economy, to households and SMEs" (small and medium enterprises), he said in a statement.
Before stepping into the role, the ECB conducted a stringent financial health check of the eurozone`s 130 biggest banks in a year-long audit.
Its results, published late last month, showed a large majority of banks passing the test.
The ECB, in charge of monetary policy for the 18 single currency countries, will see its banking supervisory and interest-rate setting bodies strictly separated from each other organisationally and physically.
The SSM is being housed in the ECB`s current Eurotower headquarters in downtown Frankfurt with a totally separate staff -- around 1,000 have been recruited -- from the other ECB employees.
Daniele Nouy, ECB supervisory board chairman, called it a "unique opportunity" to develop a "truly European" system, "building on the best practices of supervisors from across the euro area".
