What it is

A competent authority is the prudential supervisor of a bank: the public body that authorises it, monitors its risks, sets its capital and liquidity requirements and, when it deteriorates, can impose early-intervention measures. In the Banking Union the competent authority for a significant institution is the European Central Bank, acting through the Single Supervisory Mechanism, while national competent authorities supervise less significant institutions and assist the ECB. Outside the Banking Union it is the national supervisor of each Member State.

The concept matters because the resolution framework carefully distinguishes the supervisor from the resolution authority. The two perform different functions at different stages of a bank's life. The competent authority is concerned with the going concern: keeping the bank safe and sound, running the supervisory review and evaluation process, approving recovery plans and, if the bank comes under stress, deploying supervisory and early-intervention powers to try to restore it. The resolution authority — the Single Resolution Board or a national resolution authority — is concerned with the gone concern: planning for failure, assessing resolvability, setting MREL and executing resolution tools once a bank can no longer be saved.

Why the distinction matters in resolution

The handover between the two authorities is one of the pivot points of the framework. It is normally the competent authority that determines a bank is failing or likely to fail, after consulting the resolution authority; that assessment is a precondition for resolution. Before that point, the competent authority may apply early-intervention measures — for instance requiring the bank to implement its recovery plan or change its management — which sit between ordinary supervision and resolution. Separating supervision from resolution avoids the conflict of interest that would arise if a single body both supervised a bank and decided whether and how to resolve it, and it ensures that resolution planning is done independently of the supervisor's forbearance.

The term "competent authority" is defined in the prudential rulebook rather than the resolution directive. It appears in the Capital Requirements Directive, Directive 2013/36/EU, and is defined in the Capital Requirements Regulation, Regulation (EU) 575/2013, Article 4(1)(40), as a public authority officially recognised to supervise institutions as part of the supervisory system in operation. Within the Banking Union the allocation of supervisory tasks between the ECB and national competent authorities is governed by the SSM Regulation, Council Regulation (EU) 1024/2013. The distinct role of resolution authorities is set out in the Bank Recovery and Resolution Directive and the SRMR.

Practical relevance for banks and investors

For a bank, identifying its competent authority answers who sets its capital add-ons, reviews its risk profile and holds early-intervention powers — questions separate from who would resolve it. For investors and analysts, the supervisor–resolver distinction clarifies which authority acts at which stage of distress, and why the determination of failing or likely to fail, made by the supervisor, is the trigger that passes a case to the resolution side.