This week the European Central Bank officially took over its role as supervisor of the new banking union, directly overseeing 120 major banks in the eurozone, while the chair of its supervisory board indicated a new reporting regulation would be ready by early next year.

Known as the Single Supervisory Mechanism (SSM), the new regulator is one of the major pieces of the banking union. It automatically applies to all Member States in the euro area, with other Member States able to participate if they choose to do so. The SSM directly oversees 120 of the major banks in the EU, and will work with national regulators to indirectly supervise more than 3,000 other financial institutions. The banks under direct supervision, announced in September, have assets of more than 30 billion euro, account for at least 20 percent of their home country’s GDP, or have either requested or received direct public assistance from EU bailout funds. The firms include credit institutions, financial holding companies, and mixed financial holding companies, and together represent nearly 85 percent of all banking assets in the eurozone.

The SSM will oversee the efforts of national regulators to monitor the less significant banks, but can assume direct supervision of those banks at any time if it is deemed necessary to ensure consistent application of high supervisory standards, the European Commission said. The SSM is run by a Supervisory Board with support from the ECB Governing Council as well as a mediation panel to resolve disputes between the new regulator and the national competent authorities. In the run-up to taking over its new role, the ECB conducted a comprehensive assessment of the EU’s biggest banks. Those results were released last week.

“Today marks the next step towards a fully operational banking union,” Jonathan Hill, the newly installed commissioner in charge of financial stability, financial services, and capital markets union, said in a statement. “Building on last week’s stress test results which highlighted the credibility of the ECB, the Single Supervisor will now ensure the day-to-day surveillance of banks in the eurozone, helping to keep the European banking sector safe and remaining alert to new risks emerging.”

Hill also called for the completion of the next piece of the banking union – the Single Resolution Mechanism, which would make decisions on when to wind up a failing bank and how to go about it. The European Commission is working on proposals on how to fund the bail-out mechanism.

“The success of the SRM is vital so that insolvent banks can be resolved in an orderly fashion, without taxpayers’ having to foot the bill,” Hill said.

The day before the SSM officially began its duties, its leader spoke to European Parliament’s Committee on Economic and Monetary Affairs. Danièle Nouy, chair of the SSM Supervisory Board, said the bank stress tests, which involved more than 6,000 experts from national regulators, laid a solid foundation for cooperation with the national competent authorities.

“The comprehensive assessment has given the SSM extensive granular information that it will use to push ahead with effective supervision in the years to come,” Nouy told the committee. “Furthermore, a considerable amount of information has also been released to the public. This degree of transparency is an important element in enhancing the confidence of investors in the European banking system.”

Of the 130 banks reviewed, 25 were identified as having capital shortfalls worth a total of 24.6 billion euro. Twelve of those banks already have resolved the problem through the issuance of new capital; the remaining 13 are expected to submit plans next week that outline how they will improve their position in the next six to nine months, Nouy said.

Legal and operational work also has been part of the massive preparation, Nouy said, pointing to decisions to separate the ECB’s monetary policy and supervisory functions, and the regulation concerning what supervisory fees the banks will be charged. Nouy also pointed to an upcoming regulation on reporting of supervisory financial information, expected to be adopted in early 2015. The ECB launched a consultation last month on the draft regulation, which covers what requirements banks must follow in submitting financial information to either the national competent authorities or to the ECB in the case of banks under direct supervision. The required information includes items like financial assets, non-performing exposures, financial liabilities, and impairment due to credit losses, according to the ECB. A hearing on the proposed regulation is scheduled for next week at the ECB’s Frankfurt office.

“We are ready to take on our tasks,” Nouy told the committee. “As is rightly expected of us, we will be tough and intrusive but even-handed, accountable but independent.”