The extent to which European banking union will cover all banks in the eurozone came under fire yesterday (3 September) as MEPs and the German finance minister raised doubts that the Commission’s blueprint will be feasible.

The EU executive has been working on a legislative proposal for establishing a Single Supervisory Mechanism (SSM) for eurozone banks. The commissioner for the Internal Market, Michel Barnier, is due to publish detailed proposals on banking supervision on 12 September.

“Our approach envisages an ambitious mechanism with a relatively broad coverage, which will oversee all banks in the euro area, with the European Central Bank at the heart of the system,” Economic and Monetary Affairs Commissioner Olli Rehn told a meeting of the Parliament’s economic and monetary affairs committee yesterday.

Parliament concerned about banking union

But Marianne Thyssen MEP (European People’s Party; Belgium), a senior member of the committee, raised the question of how many banks would be covered by the new regime.

She said that there were expert opinions suggesting that if all banks are covered, some might “redistribute their competencies” in ways that would not benefit the sector or the public. “We want to know how you will deal with that,” she asked Rehn in a question-and-answer session last night.

Meanwhile yesterday, German Finance Minister Wolfgang Schäuble rejected the plan to give the ECB powers to monitor all eurozone banks, saying it should instead focus only on systemically important institutions.

"The ECB has itself said it does not have the potential to supervise the European Union's 6,000 banks in the foreseeable future," Schäuble told German radio, expressing scepticism about the timeframe envisaged in the Commission proposals.

"With the bigger, systemically relevant banks ... there is a chance that direct supervision by the ECB could be realised in a foreseeable period of time," he said.

Germany wants Landesbanks out of supervisory scope

Despite the presence of some 6,000 banks in the European Union, the vast majority are small and relatively insignificant and more than 90% of all assets are believed to be held by only around 200 institutions.

Berlin is keen to retain an exception from supervision for its state-owned and politically connected Landesbanks.

MEPs debating monetary union also voiced concerns about the relationship of the non-eurozone states to the new structure of supervision. It is presumed that the European Banking Authority (EBA) will play a mediating role between the eurozone and non-eurozone states on supervision, but there are concerns that this role may lead to a conflict of competencies with the ECB.

Meanwhile the ECB President Mario Draghi told a closed session of the committee that purchases of sovereign bonds with a maturity of up to three-years by the central bank would not breach EU rules, Reuters reported.

Draghi is set to unveil details on Thursday (6 September) of the new ECB bond-buying scheme aimed at easing borrowing costs for eurozone vulnerable countries which ask for help.