May 28 (SeeNews) - Croatia has formally requested the establishment of close cooperation with the European Central Bank (ECB) on the supervision of the country's banks under the Single Supervisory Mechanism (SSM), Croatia's central bank said.
Establishing close cooperation on the supervision of banks in Croatia is part of the steps the country needs to make towards its entry in the EU's Exchange Rate Mechanism (ERM II) in preparation for joining the euro area, the Croatian National Bank (HNB) said in a statement on Monday.
It added that Croatia aims to simultaneously enter into close cooperation with ECB and into ERM II.
Croatia's finance minister Zdravko Maric said earlier this month that the government plans to launch its bid to join the euro area within two months. The process is expected to take at least four years to complete with the first formal step being the entry to ERM II.
ERM II ensures that exchange rate fluctuations between the euro and other EU currencies do not disrupt economic stability within the single market. It also helps non euro-area countries to prepare for joining the euro area.
To qualify for adopting the euro, a EU member state needs to spend at least two years in ERM II.
All countries of the euro area participate automatically in the SSM, while EU member states that do not yet have the euro as their currency can choose to participate via establishing close cooperation on banking supervision with the ECB.
The SSM aims to ensure the safety and soundness of the European banking system, to increase its financial integration and stability, as well as to ensure consistent supervision.
To establish close cooperation with the ECB, Croatia will need to adjust its regulatory framework to enable the ECB to implement bank supervision.
In addition, Croatia will also have to carry out a comprehensive assessment of its credit institutions. This will take some six to 12 months following the adjustment of the national legislation, HNB explained.
At the end of the process, the ECB decides to start a close cooperation and establishes which are the more significant credit institutions in Croatia, over which it will implement direct supervision.
HNB will continue to supervise the smaller and less significant institutions on behalf of the ECB.