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 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 percent 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.
- 'Tough, fair and independent' -
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.
Supervision will be "tough, fair and independent," vowed the SSM's new chief, Daniele Nouy.
Until now, each member state has been responsible for supervising its own banks, with varying degrees of success, as the long and debilitating crisis all too clearly demonstrated.
In addition, the ECB has built up over the years a vast expertise in analysing financial institutions and markets.
"Supervision in Europe is rightly expected to be better than what 19 national supervisors could achieve with national means," ECB executive board member Sabine Lautenschlaeger said.
"The new system of supervision should be neutral and not wedded to national thinking and traditions. It should, where appropriate, produce a level playing field."
However, not everyone is comfortable with having the ECB in charge of both monetary policy and banking supervision at the same time, as it could potentially give rise to a conflict of interests.
- 'Not completely unproblematic' -
"Having monetary policy and banking supervision under one roof is not completely unproblematic," German Finance Minister Wolfgang Schaeuble said recently.
The concern is that the central bank's monetary policy decisions could be distorted if it is too closely involved with the banking sector, leading it, for example, to setting low interest to assist weak banks.
In order to circumvent this, the banking supervisory and interest-rate setting bodies will be strictly separated from each other, not only organisationally but physically, too.
The SSM is being housed in the ECB's current Eurotower headquarters in downtown Frankfurt, while the monetary policy operations will move to the bank's spectacular new skyscraper a few kilometres away in the east of the city.
The SSM staff are totally separate from the other ECB staff as well. Around 1,000 have been recruited in all, including 800 supervisors and 200 people employed in back-office operations.
The timetables of the regular meetings of the decision-making bodies of each entity are completely different.
The challenges for the ECB are daunting, with its own reputation and that of the single currency at stake.
In order to prevent any nasty surprises being uncovered before officially taking on its new role, the central bank put the eurozone's 130 biggest banks through a stringent financial health check.
The results of the year-long audit were published last weekend, with the large majority of banks passing the test, much to the relief of the financial markets.
Nevertheless, the SSM's task was just beginning, chief Nouy said.
"We have achieved a lot in this comprehensive assessment. But at the same time, it is just a starting point for a new task under banking supervision," she said.
- Profound changes -
Observers believe the SSM could profoundly alter the way banking is carried out in Europe.
It "is a regulatory development of unprecedented magnitude and is likely to prove to be a game-changer," wrote the international law firm Paul Hastings in a recent report, predicting a further consolidation in the sector.
In an interview with the German daily Handelsblatt, the head of the IMF's monetary and capital markets department, Jose Vinals, agreed, saying "there are too many banks in Europe. A consolidation is long overdue."