A German-led alliance is pushing back against plans to give the European Central Bank authority over all euro-area banks, proposing limits on its jurisdiction and a management overhaul of its supervisory duties.
The group says ECB power should be restricted to banks that receive European bailouts and those that are systemically important, according to a Nov. 6 document obtained by Bloomberg News. Before taking action involving the rest of the euro area’s 6,000 lenders, the ECB would have to determine a threat to financial stability or find a failure by a national authority, the document says. Failed banks or requests from national regulators would also qualify for ECB intervention.
Squabbling among nations may derail the European Union’s bid to establish the ECB as the bank supervisor by the end of the year. The disagreements risk stymieing plans to break the bank-sovereign link that has worsened the region’s debt crisis. Germany has emphasized a go-slow approach, citing concerns over cost-sharing and a muddying of the ECB’s monetary-policy role.
The new proposal contrasts with EU Financial Services (SXFPEX) Commissioner Michel Barnier’s plans to put the ECB in charge of all euro area banks. All 27 EU leaders last month affirmed their pledge to establish ECB oversight of euro-area banks and set a Dec. 31 goal for political agreement on the new supervisor’s design.
The single-supervisor proposal would open the door for direct bank bailouts from the euro area’s rescue fund.
“Quality has to go before speed” in setting up the single supervisor, German Chancellor Angela Merkel told lawmakers in the European Parliament today.
“It’s very important that the supervisory mechanism functions properly,” Merkel said. “There has to be banking supervision that’s worthy of the name.”
Germany along with Finland, the Netherlands and Luxembourg, want to limit the ECB’s influence over their banks, according to the 19-page draft. They also want an ironclad divide between the central bank’s monetary-policy authority and its planned bank- supervisory board. EU lawyers have said the central bank’s governing council is required by treaty to have final authority over all ECB decisions.
ECB President Mario Draghi has supported the common supervisor as essential to the euro area’s crisis fighting. He said last month that the initiative would prevent national authorities from covering up problems until they are too large to escape international scrutiny.
“In the past, problems in the banking sector have been hushed up time and again,” Draghi said in a Der Spiegel interview published Oct. 29. “I am certain that we will be able to act more independently and quickly if Frankfurt is at the heart of the decision-making.”
So far, five of the euro area’s 17 nations have sought bailouts. The ECB and other European authorities have required countries to cut deficits, shore up banks and hand over some control to receive aid.
The German-backed proposal scales back the supervisor’s influence over countries not needing assistance. This approach “would allow for a clear attribution and separation of tasks and responsibilities,” according to the document, which was drawn up by the four governments and submitted to the EU. “It would be clear to everyone who is competent for the supervision of which bank and for the performance of which tasks.”
The four countries also seek to give governments a further veto opportunity before full oversight responsibilities are handed to the ECB. Governments should take a final decision after the ECB’s supervisory arm is up and running, according to the documents. This decision would have to be unanimous.
The document “is part of normal working group negotiations, which involves drafting proposals. We have no further comment on the matter,” the Finance Ministry in Helsinki said in an e-mailed response to a request for comment.
Government officials in the Netherlands and Luxembourg declined to comment. The German finance ministry didn’t have immediate comment.
The document shows internal divisions among the four countries on other elements of how the project should be taken forward. The splits include how to separate ECB monetary-policy decisions from bank oversight, and how far power can be devolved from the central bank’s governing council.
Germany, the Netherlands and Finland also want a clearer split between the ECB’s responsibility for monetary policy and its oversight duties. The ECB’s governing council should be able to devolve some decision making to a board headed by a “full- time professional,” according to the document.
Only in cases where decisions “may significantly influence the stability of the financial system” would the governing council have to make the final call, the document says, noting that Luxembourg has reservations on this approach.
Germany and Finland “are not convinced that the necessary separation of decision-making can be achieved” and that a different approach may be needed, the document says.
EU lawyers have said that any moves to limit the ECB governing council’s role in supervisory decision-making risks contravening the bloc’s treaties.
Cyprus, which holds the rotating EU presidency, on Oct. 31 proposed that the ECB should be able to give instructions to all banks in the euro area, while cooperating with national regulators. The ECB would also implement many decisions via national authorities, according to documents obtained by Bloomberg.
The ECB should cooperate with national regulators “in particular” for banks that “are of lesser financial, economic or prudential relevance,” the documents said. Banks in this category shouldn’t exceed “half of the assets of the banking sector” in the countries covered by the single supervisor.
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