Still under discussion is the scope of supervision, with Germany seeking to retain control over its Sparkassen.
In Berlin's opinion, the ECB should only intervene when necessary, with day-to-day regulation of smaller banks left to national supervisors.
France has opposed this view, arguing that a ‘two-tier’ regulation would leave open the risk of market panic as soon as the ECB intervenes. Indeed, any attempt by the super-regulator to regain supervisory control would almost certainly cause markets to register a loss of faith in the bank involved, triggering widespread panic and a bank run.
"The problem with the Germans is political, not technical," said an EU diplomat who spoke to journalists on condition of anonymity.
Localism in the banking system
However, policymakers believe the two countries may be able to find a compromise if a local supervision was limited to banks with no cross-border interests.
At a panel discussion held at the Brussels representation of the State of Hessen on 5 December, Ignazio Angeloni, director general for financial stability at the ECB, said he understood that local banks are important to the economy.
However, certain rules are general and have to remain general in order to safeguard the quality and the stability of the banking system as a whole.
"I believe that the national supervisory authorities have dealt with banking systems of that form in Germany, Italy and elsewhere have had to use in a sense a single rule book and adopted the single rule book to the specific circumstances and characteristics of the local banks," Angeloni said.
"This is possible. It has been done and can continue to be done at a European level," he added.
'One size doesn't fit all'
Helmut Siekmann, director of the Institute for Monetary and Financial Stability at the Goethe University in Frankfurt, said he was worried that policymakers will come up with simplified solutions that will not work.
However, there could be some exceptions with cooperative and savings banks, argued Sven Giegold, a member of the European Parliament for the Greens who sits on the Committee on Economic and Monetary Affairs.
"Certainly some exceptions can be granted. Some banks can remain under the national supervision, but the systemic banks and the public banks should come under the supervision of the ECB," the MEP said.
Until now, the Parliament's position was that all 6,000 banks in Europe should come under the ECB's supervision.
Jan Ceyssens, a senior official at the European Commission's Internal Market directorate, said that no bank should be excluded from supervision since even the smaller ones had created market jitters during the 2008 financial crisis.
"We think that a banking union which would only focus on the bigger financial institutions would be a wrong construction and wouldn’t be adequate," Ceyssens said.
However, if the ECB supervisory body was made up of representatives from national supervisory bodies, then the supervisor would know how to deal with smaller cooperative banks, he added.
"Europe has understood that a 'one size fits all' isn’t necessarily the right choice," Ceyssens said.
