The launch of the Single Supervisory Mechanism (SSM) was an historic event. Beginning in Nov. 2014, the most significant banks came under the direct supervision of the European Central Bank (ECB), while national supervisory authorities (NSAs) maintained direct supervision of the remaining banks. Thus, supervision is conducted on two levels, which could cause inconsistency problems. Did the behavior of the significant banks differ from that of the less significant banks during the SSM launch? We find that the significant banks reduced their lending activity more than the less significant banks did in order to shrink their balance sheets and increase their capitalization.

Did the Comprehensive Assessment (CA), preceding the Single Supervisory Mechanism (SSM) launch in Europe, achieve its aims of producing new valuable information for the market? We show that the CA achieved the goal of increasing transparency: investors were able to detect weak banks at the announcement of the procedure (23rd October 2013), but gained full information on the amount of the capital shortfall only at the disclosure of the results (26th October 2014). Furthermore, at the official launch of the SSM (4th November 2014), banks under direct European Central Bank (ECB) supervision registered a more negative market reaction with respect to banks maintaining their national supervisors. Using a regression model including possible confounders and allowing for treatment effect heterogeneity, this negative reaction is confirmed. These findings suggest that, at least in the short run, investors penalized banks subject to direct ECB supervision, probably because of the fear of regulatory inconsistencies.