Finance ministers clinch banking union deal

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Finance ministers reached agreement early today (13 December) on the basic mechanism for a single supervisory authority over eurozone banks – the key first step to a banking union.

 

Key differences between ministers were overcome to give the European Central Bank (ECB) direct authority over around 150 of the eurozone's largest banks, with smaller banks subject to supervision as needs require.

The system should be operational by 1 March 2014, subject to European Parliamentary approval.

The agreement – which follows a roadmap laid down in October – clears the way for heads of state and government arriving for a two-day summit in Brussels today to give their full attention to an agenda dealing with the roadmap for deeper economic and monetary union.

Eurozone banks with many assets fall under supervision

Under the deal, banks with assets of €30 billion, or more than one-fifth of their country's economic output, will come under direct ECB supervision, but the central bank is also given sweeping powers to supervise smaller banks should problems arise.

Limiting direct supervision to the larger banks satisfied Germany’s desire to keep its local savings banks, or Sparkassen, away from direct supervision.

Another thorny issue thrashed out by ministers related to the conflict of interest between the ECB's roles as supervisor and as guardian of monetary policy.

They agreed to introduce a mediation panel to resolve disputes with national supervisors, another move designed to mollify German concerns that the ECB Governing Council would be too strong under the new supervisory regime.

Michel Barnier, EU commissioner for the Internal Market and Services, told reporters afterwards that “there's no ambiguity” about the central role that the ECB will play in supervision.

 

 

 

Non-eurozone issues also cleared up

Meanwhile, agreement was also reached between eurozone countries and those which do not use the single currency, especially the United Kingdom, which wanted to safeguard the City of London from financial regulation being dictated by the eurozone.

London obtained a change to the voting rules of the European Banking Authority, meaning that when the body decides new rules and standards, these must be agreed both by a majority of the eurozone countries and by a majority of those countries outside the euro, a so-called “double majority”.

The next pillar of a banking union will be the creation of a central system to close troubled banks.

At a summit in June, EU leaders agreed that once a common bank supervisor was in place, the bloc's rescue mechanism would have the power to directly recapitalise struggling banks.

This is a priority for Italy and Spain, and is backed by French President François Hollande, but Germany – Europe’s paymaster – is wary of such funds being made available quickly.

Under the deal recapitalisation is set to be considered from mid-2014, which would bring the issue to the fore following the general election in Germany next September.

At a summit in October, 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.

The summit deal confirmed the objective of agreeing the legal framework by 1 January 2013.

Once the legalities are worked out, the ECB is expected to steadily take over responsibility for overseeing all 6,000 eurozone banks, taking up to a year to complete the process.

  • 13-14 Dec.: EU summit in Brussels to adopt roadmap for deepening the Economic and Monetary Union in the euro zone
  • By end 2012: EU objective is to agree the legislative framework
  • 2013: Single supervisory framework could become effectiv
  • By 1 Jan. 2014: Banking union to be fully in place

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