The chair of the eurozone’s new single supervisory mechanism sought to soothe nerves yesterday (3 November) before the Frankfurt-based body starts supervision today of 120 of Europe’s largest banks, including several carrying too much debt.
The new banking watchdog’s chair, Frenchwoman Danièle Nouy, told MEPs in Brussels she expected eurozone banks to fill capital shortfalls revealed by a landmark health check earlier this year without tapping public funds.
The ECB concluded an unprecedented joint review of the eurozone’s largest banks on 26 October, revealing that 13 banks failed the test and that the sector needs to fill a €9.5-billion capital hole.
“We expect the capital shortfalls to be covered by private sources,” Nouy told the European parliament’s Committee on Economic and Monetary Affairs in a public hearing.
She added that only in cases where there was no possible solution would the question of a public backstop be relevant and if so the stated rules would then apply. These require, as a minimum, burden sharing on junior creditors.
“I am confident that the banks can meet their shortfalls through bank internal measures and by accessing the financial markets,” Nouy said.
The new European banking supervision mechanism officially begins its work today under the responsibility of the European Central Bank (ECB).
A new corps of almost 1,000 bank supervisors has been budgeted for the supervisor, of whom 900 staff have been recruited and have joined the ECB in Frankfurt.
The most important banks in the Eurozone will be under direct supervision, with the ECB having an indirect responsibility for all other banks.
“The past year has been one of the most challenging in the history of the ECB,” Nouy said. “We are ready to take on our tasks. As is rightly expected of us, we will be tough and intrusive but even-handed, accountable but independent.”
"The launch of the single European banking supervision is a milestone for more financial stability in Europe. It will finally draw a line under the often lax national banking supervision, which played a significant contributory role in the financial crisis and led to €5 trillion of European taxpayers' money being put on the line to rescue failing banks,” said the European Parliament’s Green economic and finance spokesperson Sven Giegold. However he warned: "The fact that the ECB is responsible for this supervision was clearly a second best solution, largely due to the current EU treaties. It has led to an undesirable concentration of powers in the ECB, with the potential for conflicts of interest. In addition, conglomerates of large insurance companies and banks cannot be effectively supervised by the ECB for legal reasons. Clearly, these flaws should be resolved and the Greens will continue to push for a change to the European treaties to enable the creation of a truly independent authority for common supervision.”
At a summit in October 2012, EU leaders agreed plans to complete the European banking union by January 2014, after the general elections in Germany.
The concession was made to German Chancellor Angela Merkel who argued for "quality" over "speed" in putting in place the new supervisory system, seen as a cornerstone of the EU's efforts to end the eurozone' sovereign debt crisis.