Within the scope of the banking union, the supervision of all euro-area credit institutions was assigned to the European Central Bank (ECB) on 4 November 2014. The Single Supervisory Mechanism (SSM) specifies how banking supervision duties are organised by the ECB and the national supervisory authorities. The significant institutions are directly supervised by the ECB. The ongoing supervision of these institutions is undertaken by joint supervisory teams made up of employees from the ECB and the national supervisory authorities. The less significant institutions continue to be supervised by the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht or BaFin) and the Deutsche Bundesbank. However, the ECB performs an oversight function at the less significant institutions. The central decision-making body of the SSM is the Supervisory Board, as part of which the ECB and the national authorities make supervisory decisions.

The classification of institutions as significant or less significant is performed on the basis of criteria which are detailed in the SSM Regulation and fleshed out by the SSM Framework Regulation, according to which a credit institution or banking group is classified as significant if any one of the following criteria is met:

• The total value of an institution's assets exceeds €30 billion or 20 per cent of national gross domestic product, unless the total value of its assets is less than €5 billion.
• The national competent authorities believe the institution is to be viewed as significant with regard to the domestic economy, and the ECB confirms this.
• The institution receives direct public assistance from the European Financial Stability Facility (EFSF) or the European Stability Mechanism (ESM).
• The institution is one of three most significant credit institutions in a member state.
• The ratio of the institution's cross-border assets/liabilities to its total assets/liabilities exceeds 20%. 

Furthermore, the ECB, following consultation with the relevant national competent authority, can classify an institution or a banking group as significant of its own accord, insofar as it deems this to be necessary in order to ensure the application of consistent, high supervisory standards. If an institution is classified as significant, the ECB's direct supervision only ends if none of the criteria are fulfilled for three consecutive years. This ensures that direct supervisory powers do not alternate between the national competent authorities and the ECB too frequently.