FRANKFURT: The European Central Bank takes over as Europe’s banking watchdog on Tuesday in a historic shake-up of the financial system aimed at preventing a repeat of the crisis that nearly led to the collapse of the euro.

The ECB, in charge of monetary policy for the single currency countries since the start of 1999, has seen its role of central bank drastically redrawn in the financial and economic storms that have battered the region during the long years of crisis.

Long seen as the only European institution capable of fixing the eurozone’s financial woes, the ECB has had to charge to the bloc’s rescue repeatedly, each time with ever more daring — and controversial — measures.

But taking on the role of banking supervisor will prove to be one of the most profound and far-reaching so far, observers say.

The new watchdog, the Single Supervisory Mechanism or SSM, will be responsible for the direct supervision of the eurozone’s 120 largest banks, representing 85 per cent of total banking assets in the euro 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 overall oversight of the ECB.

The idea is that the ECB, as an independent institution, will ensure banking supervision from a Europe-wide perspective.

The SSM is one of the three main pillars of a future European banking union, next to a single banking rule-book and a Single Resolution Mechanism (SRM) in charge of winding up failing banks.

Published in Dawn, November 1st, 2014