Blueprints for a European banking union to be published on Wednesday (12 September) will trigger fevered debate over the powers of the European Central Bank (ECB), if a draft leaked late last week remains unchanged.
The draft proposal gives the ECB sweeping powers to carry out spot checks and withdraw banking licences, previously the preserve of national supervisors.
The ECB would assume its new duties on 1 July 2013, the paper says, taking sole authority at the beginning of 2014.
The proposals – which still face months of negotiation between governments and the European Parliament – give the ECB the power “to authorise credit institutions and to withdraw authorisation of credit institutions”.
ECB would get power over all eurozone banks
On two key issues the draft indicates that the debate will be fierce.
As expected, the draft gives the ECB the right “to be able to exercise supervisory tasks in relation to all banks” within the eurozone, a move resisted by Berlin.
German Finance Minister Wolfgang Schäuble last week lambasted the idea of giving 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.
The majority of EU banks are small and more than 90% of all assets are believed to be held by some 200 institutions.
Berlin is keen to retain an exception from supervision for its state-owned and politically connected Landesbanks.
Non-eurozone authorities could be trumped
Meanwhile, the potential reach of the ECB’s supervisory control into non-euro states is also covered by the draft, which says that such states would be pushed to enter into formal “close co-operation” agreements with the ECB.
Such agreements could allow the ECB to use the same spot-check powers within non-eurozone states as in eurozone countries.
These include the right to require the submission of documents, examine and take records, quiz staff members and carry out unannounced on-site inspections.
That will provoke resistance from some non-eurozone, notably the UK.
“There are ten non-eurozone countries for whom the ECB does not have a role to play in the management or supervision of the prudential safety [within the banking sector],” Conservative UK MEP Kay Swinburne – a member of Parliament’s economic and monetary affairs committee – said in New York on Friday (7 September).
“The UK would not want the ECB to regulate its banking sector. It seems the proposals will be done under an article that requires unanimity, and I know that three and possibly four member states are vehemently opposed,” Swinburne said.
Red letter day for Europe
The common bank supervisor proposal is due to be unveiled on Wednesday in the European Parliament in Strasbourg by Commission President José Manuel Barroso and financial services Commissioner Michel Barnier.
On the same day the German constitutional court in Karlsruhe is set to deliver its judgment on whether the European Stability Mechanism and fiscal compact conform with the German constitution.
A "single supervisory mechanism is the basis for the next step towards the banking union," says the draft banking union proposal, leaked late on Friday (7 September) by Italian financial newspaper Il Sole 24 Ore.
"This reflects the principle that any introduction of common intervention mechanisms in case of crises should be preceded by common controls to reduce the likelihood that intervention mechanisms will have to be used," the draft says.
ECB executive board member Jörg Asmussen said on 5 September that while the central bank was ready to take on the new supervisory role, it had to be given real powers, including the right to “shut down, if necessary, banks that cannot survive on their own.”
“Having the ECB oversee the supervision of the European banking sector might be a good thing. But I use the word ‘European’ cautiously here, because actually the ECB is the central bank for 17 member states which use the euro as their currency. There are ten others who do not, and the ECB does not have a role in the management or supervision of their prudential safety,” Kay Swinburne MEP (Conservatives & Reformists; UK) said during an interview in New York on Friday (7 September).
“I would not want to take the ECB and suggest that they should supervise all 27 member states and I think we will struggle to get such a proposal through the member states, and the UK would not want the ECB to regulate its banking sector,” Swinburne said, adding: “It seems the proposals will be done under an article that requires unanimity and I know that three, and possibly four, member states are vehemently opposed.”
EU leaders decided at a June summit to create a common banking supervisor as part of a deal that would allow the bloc’s rescue funds to directly lend funds to stricken banks instead of passing aid through countries and adding to sovereign debt problems.
It is a first step towards a banking union and part of wider moves towards fuller economic and political integration which they judged necessary to break the vicious circle driven by the eurozone debt crisis which has brought the region’s economy to a standstill.
- 12 Sept.: Internal markets Commissioner Michel Barnier set to publish proposals for a single supervisory mechanism for eurozone banks.
- 13-14 Dec.: EU leaders could adopt the plan at the formal December summit meeting.
- Jan. 2013: If the rules are adopted, the European banking supervisor could start operation.
- Il Sole 24 Ore: leaked draft of banking union proposal
- TABB Forum: Interview with Kay Swinburne
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