Bloomberg News

EU Nations Eye New ECB Bank Supervisor Amid German Doubts

December 04, 2012

Moscovici Schaeuble

Wolfgang Schaeuble, Germany's finance minister, left, listens to Pierre Moscovici, France's finance minister. Photographer: Jock Fistick/Bloomberg

European Union finance ministers tried to bridge bank oversight disagreements, a step that would help sever links between banking woes and sovereign debt plaguing the crisis-stricken euro zone.

Germany sought to shield its small banks, France pressed for common standards and Spain wanted influence that reflects the size of its banking market at a meeting of finance ministers in Brussels today. No nation offered die-hard opposition to the new supervisor, which EU leaders seek to establish at the European Central Bank by the end of this year. Further gatherings are possible before Dec. 31.

“We have to find a new solution,” said German Finance Minister Wolfgang Schaeuble, reiterating his country’s concerns about ECB independence and the role of national authorities. He said the German parliament won’t allow the single supervisor to proceed unless his nation’s regulators keep control of smaller banks under most circumstances.

Governments are racing to meet a year-end deadline to set up a joint supervisor at the Frankfurt-based ECB, which would be mandatory for the 17 euro-zone nations and optional for other EU members. ECB oversight is a required first step before banks can directly tap the currency area’s firewall fund.

Direct Aid

Loans from the bailout fund, such as for Spain’s financial- sector rescue, must currently pass through national authorities. In addition to helping establish the new supervisor, euro-area finance ministers must design guidelines for how the 500 billion-euro ($653 billion) European Stability Mechanism could provide direct aid to banks and what conditions would apply.

“We should not lose sight of why this issue is urgent,” said Portuguese Finance Minister Vitor Gaspar. The single supervisor “is key to contain macrosystemic risk in the euro area and avert catastrophic possibilities.”

Nations debated supervisory voting procedures, how ECB oversight would apply to smaller banks and the role of national regulators. They sought common ground on how the new supervisor will work with non-euro countries.

“There must be equal terms for countries inside the euro as well as for those outside,” Swedish Finance Minister Anders Borg said. “We will not accept a solution that makes anyone a second-tier member of the new supervisor.”

Treaty Change

Borg said finance ministers could choose to meet again this month in a bid to wrap up work on the plan this year, as EU leaders called for in October. He also broached a “technical treaty change” to establish the new supervisor, a step ECB lawyers have said won’t be necessary.

If finance ministers can’t agree on a deal, it may be impossible for a political framework to be in place on Jan. 1. EU leaders, who will meet Dec. 13-14 in Brussels, are set to tackle broader issues of banking union while leaving oversight details to the finance ministers.

ECB Vice President Vitor Constancio said the central bank questions whether national governments should take the lead in choosing the chief of the new supervisory panel. “We urge the council to reconsider,” he said during public debate today.

Schaeuble countered by saying bank supervision can’t be subject to the same standards that apply to monetary policy.

Chinese Wall

“You can’t leave banking supervision with the independence of the central bank,” he said. “The rights of the last decision cannot be left to the Governing Council of the ECB -- then we would not have a Chinese wall. And that is very essential.”

The new supervisor would oversee all banks in its coverage area by Jan. 1, 2014, according to documents obtained by Bloomberg News. It would be phased in over the course of 2013, and the ECB would have until July 2013 to design how it will work with national regulators. The dates are provisional and could change.

“Germany is making a mockery of its own quid pro quo for shoring up the eurozone: greater centralization in exchange for greater risk-sharing,” said Nicholas Spiro, managing director of Spiro Sovereign Strategy in London. “When it comes to banks, it wants neither.”

France wants the ECB to supervise all banks in the euro zone, though “practical arrangements” will have to be found for smaller, local banks, Finance Minister Pierre Moscovici said.

“Ultimately, it’s the ECB that should be responsible for the totality,” Moscovici said. Financial problems “don’t only come from banks regarded as systemic.”

Last-Resort Powers

Schaeuble indicated that Germany wouldn’t block last-resort ECB powers over every euro-area financial firm.

“We are ready to accept a clear division of labor with the right of the European banking supervision to take responsibility in any case,” he said.

The plan should ensure that “the number of banking groups that will be directly supervised by the center will be contained within reasonable numbers,” Constancio said. While urging changes to the schedule for phasing in the ECB’s new powers, he called the proposal “very good.”

Officials aren’t trying to entice the U.K., home to Europe’s biggest financial center, into the ECB-housed supervisor because it has already said it doesn’t want to join. The U.K. seeks to make sure the ECB doesn’t have an unfair advantage at the European Banking Authority, a London-based agency that sets technical standards and mediates disputes among national regulators.

The Czech Republic, which has no imminent plans to join the euro, also wants to stay out of the bank-supervision project. During public debate today, Czech Finance Minister Miroslav Kalousek said his country would require assurance local regulators will have “decisive” say on whether units of foreign banks are regulated as branches or subsidiaries, a position supported by Bulgaria.

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

To contact the editors responsible for this story: James Hertling at jhertling@bloomberg.net; Anthony Aarons at aaarons@bloomberg.net


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