Bloomberg News

EU Nations Clash on Thresholds for Direct ECB Oversight

November 29, 2012

EU Nations Clash on Thresholds for Direct ECB Bank Oversight

Governments are racing to meet an end of 2012 deadline to set up a single supervisor at the Frankfurt-based European Central Bank. Photographer: Simon Dawson/Bloomberg

The European Union is quarreling over thresholds on how big euro-area lenders must be in order to be designated for direct oversight by the European Central Bank, according to draft proposals.

Nations are at odds over three different size thresholds, according to the document drawn up by Cyprus, which holds the EU’s rotating presidency. Some countries are seeking to set the bar as low as banks with more than 2.5 billion euros ($3.2 billion) in assets, while others are calling for divisions at 20 billion euros or 60 billion euros, according to the text, dated Nov. 27 and obtained by Bloomberg News.

States are also split over having direct ECB supervision triggered by a ratio between a bank’s assets and the gross domestic product of its home country, according to the proposals, intended to forge a deal on the supervision plan. Suggested thresholds in the text put the tipping points at assets of more than 20 percent, 50 percent or 75 percent of GDP.

Governments are racing to meet an end of 2012 deadline to set up a single supervisor at the Frankfurt-based ECB. EU finance ministers will meet next week to seek compromises on the bank-oversight plan, which the bloc’s leaders have labeled as an essential step to break the bank-sovereign link that has worsened Europe’s debt crisis. The draft document didn’t reveal what nations held what positions in the talks.

All Banks

Direct ECB oversight would automatically apply to any lenders with cross-border presence, under the draft plans. The ECB would have powers “at any time ” to sideline national regulators and take over direct supervision of any bank, according to the proposals.

Dutch Prime Minister Mark Rutte yesterday urged the EU to press ahead with the new banking supervisor, starting with banks that already receive aid and broadening to expand all banks.

“We believe it should be built,” Rutte said in an interview in Amsterdam. “In the end, I believe you need to have some way involving all the European banks, the problems didn’t start with Santander (SAN) in Spain, they started with the cajas, which are the small local banks.”

Spanish Banks

The supervisor must be in place before the euro area can consider giving banks direct aid from the euro area’s rescue funds. Governments must currently take responsibility for loans from the firewall fund, such as Spain’s 100 billion-euro financial-sector rescue.

There is a “fundamental inconsistency between the single monetary policy of the euro area and the national responsibilities for banking policies,” said ECB executive board member Benoit Coeure, in a speech in Hong Kong yesterday.

“The need to sever the negative feedback loop between banks and sovereigns by taking responsibility for the stability of the banking system at European level has become clear. ”

Coeure said the ECB will delegate many tasks, “probably most of them,” to nations. At the same time, this should be “within a centralized decision-making process and according to a single handbook,” he said.

The ECB said it needs “control powers” over the whole supervisory system for the new oversight to work, according to a legal opinion from the central bank.

‘Full Recourse’

The central bank said it should have “full recourse to the knowledge, expertise and operational resources” of national bank regulators.

When delegating to the national banks, the ECB shouldn’t give up its own right to step in, the legal opinion said. The ECB should “without prejudice” be able to “provide guidance and instructions, or assume the tasks of national authorities when duly required,” the central bank said in an opinion published on its website.

ECB Vice President Vitor Constancio has said that the ECB is against a two-tier system that prevents it from overseeing some banks.

The revised plans drawn up by Cyprus would keep some power with national regulators over banking licenses, and authorizing mergers, while giving the ECB a 10-day period to veto decisions.

The Cypriot proposals also seek to address concerns from non-euro area countries that they would lack a voice in ECB decision making if they sign their banks up for joint oversight.

Anders Borg, Sweden’s finance minister, has said that the EU may have to change its treaties to prevent non-euro nations being second class members of the system, because current rules ban them from sitting on the central bank’s governing council.

Under the updated proposals, non-euro countries could opt- out of ECB decisions they disagreed with. The ECB would then determine whether non-compliance means the countries’ banks should be removed from the common oversight system.

To contact the reporters on this story: Jim Brunsden in Brussels at jbrunsden@bloomberg.net; Rebecca Christie in Brussels at rchristie4@bloomberg.net

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


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