In a speech in the European Parliament yesterday (12 February), Lorenzo Bini-Smaghi, a member of the executive board of the ECB, called for the central bank to be given powers for both macro-supervision of financial markets in general and, up to a certain point, micro-supervision of single cross-border institutions too.
The idea of a single eurozone supervisory body for macro-supervision is gaining momentum as the current system, based on a patchwork of national overviews, proved to be incapable of foreseeing the massive crash. Even the G20 in London next April is expected to discuss the possibility of a global super-authority in charge of monitoring the world financial markets.
Asked about the amount of toxic assets held by European banks, Bini-Smaghi remarked: "At the moment, we are getting information from the markets and from various institutions, but there is no way we can have enough precise detail on this and that is why we can’t say exactly."
The ECB is well placed to play a centralised role, and indeed de Larosière's high-level group might suggest this option in its hotly anticipated report on the review of the financial system, set for publication on 25 February. Experts consider the only alternatives to be creating a new body or strengthening the existing supervisory committees (CEBS, CEIOPS and CESR).
If the ECB is to conduct macro-supervision, the ECB will have "to participate in the relevant colleges of supervisors of major banking groups," said Bini-Smaghi. The EU treaties should also be changed to allow the bank to supervise insurance groups, he added, something which is not envisaged at the moment. Bini-Smaghi believes it can be done quickly: "There is no need to follow the normal procedures for changing the treaty," he made clear.
Bini-Smaghi has clear ideas also about micro-supervision, or the monitoring of single cross-border banks and insurance firms.
At the moment, a banking company like Santander, which is headquartered in Spain and has branches in twelve other EU states, is supervised by the authorities of each of countries where it operates. The Spanish supervisor should have a more general control, but national objections and legal issues make this very difficult in practice, resulting in poor supervision and higher risk.
To address this shortfall, ECB is suggesting that its role be enhanced, because "macro and micro-prudential supervision have to be brought closer together," according to Bini-Smaghi. The task should be carried out by "a body close to the ECB" or by the European System of Central Banks, which includes all EU member states, he said.
However, the industry seems strongly against the idea of a centralised authority. Key member states, such as Germany and the UK, are opposed to many aspects of the approach. The ECB board is fragmented too, while the current Commission has rarely shown willingness to accept such bold projects.
