Picture: Reuters.

Frankfurt - The European Central Bank will supervise the subsidiaries of Russia's two largest banks in Austria, giving supervisors in Frankfurt unprecedented insight into their activities in Europe.

The ECB said on Friday that Russia's biggest bank, Sberbank, and No. 2, VTB Bank had been added to the list of lenders it will police because of the cross-border nature of their operations.

It also said it will pare back the number of lenders under its watch elsewhere.

A spokeswoman for the ECB said the two would be subject to a health check next year.

The euro zone's central bank is due to take on the supervision of 120 big or important banks across the 18 countries that use the euro from November.

This move is part of a wider reform known as banking union, which will subject the financial sector to tighter and more harmonised controls.

On Friday, the ECB published the list of top euro zone banks that it will police.

It differs from an earlier, temporary list published last year of 128 banks the ECB is putting through a health check to ensure they are sufficiently capitalised before it starts supervising them.

The latest list features four newcomers, with Banque Degroof in Belgium and Barclay's Italian subsidiary joining the group alongside the Austrian subsidiaries of Sberbank and VTB Bank.

Degroof will also be put through a health check by the ECB next year.

Twelve banks dropped off the ECB's watch-list, among them three in Germany. - Reuters