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European Central Bank May Get Merger Veto in Banking Union Plan

November 21, 2012

European Central Bank May Get Merger Veto in Banking Union Plan

A euro sign sculpture stands outside the headquarters of the European Central Bank (ECB) in Frankfurt, Germany. Photographer: Simon Dawson/Bloomberg

The European Central Bank would have veto powers over any bank mergers in nations that sign up to ECB-led supervision, under draft banking union rules designed to tame the euro-area’s debt crisis.

National supervisors would notify the ECB of a proposed banking acquisition at least 10 days before the deadline for a deal to be completed, according to a compromise plan obtained by Bloomberg News.

The ECB “shall decide whether to oppose the acquisition,” according to the draft measures drawn up by Cyprus, which holds the European Union’s rotating presidency. The proposals would also create a panel in the ECB to review its supervisory decisions.

EU leaders agreed in June and October to move forward with common ECB-led bank supervision to separate financial-sector risks from sovereign debt troubles, with the goal of agreeing on a political framework by Jan. 1. If a common supervisor is set up next year, it would open the door for the euro area’s firewall-fund to offer direct aid to banks.

“The panel of review shall have sufficient legal expertise to provide expert legal advice on the legality of the ECB exercise of its powers,” according to the document, dated Nov. 16.

The proposals would also give the ECB powers to require individual banks to raise capital, reduce the riskiness of their activities and disclose information on how liquid their assets are.

Stefaan de Rynck, spokesman for the European Commission declined to comment on the document. Nikos Christodoulides, a spokesman for the Cypriot presidency, didn’t respond to a call seeking comment.

German Concerns

European Central Bank Vice President Vitor Constancio said on Nov. 14 that a common bank supervisor under its control would need power over all euro-area institutions, countering German Finance Minister Wolfgang Schaeuble’s push to limit central oversight to systemically important firms.

The ECB must be able to assert control over all banks in participating countries, even if the system is set up “in a very decentralized way,” Constancio told EU finance chiefs.

Luxembourg, Finland and the Netherlands have also sought changes to the EU’s initial plan to grant the ECB broad powers.

“You should come up with a division of tasks that lets national supervisors do a big part of the work, yet always under ultimate responsibility” of the ECB, Dutch Finance Minister Jeroen Dijsselbloem said in Brussels last week.

“A group of small banks can cause risks for the financial sector or for the real economy. If those risks occur, the ECB should be able to intervene,” Dijsselbloem said.

The plan has also drawn skepticism from countries outside the 17-nation euro area. Sweden’s Anders Borg said there might be a need for “technical treaty change” if the new supervisor is housed at the ECB with the potential to supervise banks outside the currency bloc, as proposed.

To contact the reporters on this story: Ben Moshinsky in London at bmoshinsky@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net


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