The Republic of Croatia today submitted a request to the European Central Bank (ECB) for the establishment of a close cooperation between the ECB and the Croatian National Bank (CNB) in the exercise of supervisory tasks over credit institutions within the Single Supervisory Mechanism (SSM). This step is part of the procedure for the entry of the Republic of Croatia to the Exchange Rate Mechanism (ERM II) and, subsequently, to the euro area. The Republic of Croatia intends to concurrently enter into a close cooperation with the ECB and into the ERM II.

The request put forward by the Republic of Croatia is based on Article 7 of Council Regulation (EU) No 1024/2013 and on the Decision of the European Central Bank of 31 January 2014 on the close cooperation with the national competent authorities of participating Member States whose currency is not the euro (ECB/2014/5). The close cooperation is established by a decision of the ECB, upon the request of a Member State.

The request was signed on behalf of the Republic of Croatia by the Finance Minister Zdravko Marić and the CNB Governor Boris Vujčić.

The Single Supervisory Mechanism (SSM) is the first pillar of the banking union, comprised of the ECB and the national competent authorities of participating Member States. Euro area Member States participate automatically in the SSM, while the participation of non-euro area Member States is voluntary and established by a close cooperation with the ECB. The main objectives of the SSM are to ensure the safety and soundness of the European banking system and to increase financial integration and stability in the European Union. The entry into a close cooperation is a precondition for the participation in the SSM, within which the ECB exercises supervisory tasks over euro area credit institutions.

The procedure for the establishment of a close cooperation with the ECB consist of two steps: the harmonisation of the regulatory framework and the comprehensive assessment of credit institutions.

The first step involves the preparation and adoption of the relevant national legislation enabling the ECB to exercise supervisory tasks pursuant to the mentioned regulations on a close cooperation and to assess this legislation. In accordance with this procedure, the request of the Republic of Croatia is accompanied by the Draft Act on Amendments to the Credit Institutions Act with the Final Proposal of the Act.

The second step comprises the comprehensive assessment of banks in the Member State wishing to establish a close cooperation with the ECB, which consists of evaluating their asset quality and testing their resilience to shocks. The request of the Republic of Croatia is therefore also accompanied by information on credit institutions and branches of credit institutions from other countries operating in the Republic of Croatia and by total assets figures for each bank. The assessment procedure begins after the harmonisation of the applicable national legislation and lasts from six to twelve months.

Once both steps have been completed, the ECB will adopt a decision establishing a close cooperation and determine significant credit institutions in the Republic of Croatia that will be subject to its direct supervision. The remaining, less significant credit institutions will be supervised by the CNB on behalf of the ECB. The establishment of a close cooperation will result in the representatives of the CNB becoming members of the ECB's Joint Supervisory Teams and exercising direct supervision over significant credit institutions in the Republic of Croatia, with a CNB representative becoming member of the ECB's highest supervisory decision-making body – the Supervisory Board.