European Central Bank Executive Board member Yves Mersch said parts of a deal by lawmakers and national governments on banking supervision may endanger the ECB’s independence, setting up a potential clash with the European Parliament.
The parliament’s right to veto the appointment of the deputy head of the new banking supervisor, who will be chosen from the ranks of the ECB’s Executive Board, “may be beyond the red line of the ECB’s statutory independence,” Mersch said today in a speech in Berlin.
European Union lawmakers and national governments clinched a provisional deal in March to turn the ECB into a banking supervisor in 2014, a move that would pave the way for the euro area’s firewall fund to provide direct bailouts to banks. The agreement hands lawmakers a role in appointing the chair and the vice-chair of the ECB bank supervision board. The European Parliament could theoretically veto the nominations.
“The foreseen de facto veto right of the European Parliament to a nomination proposal of an ECB Executive Board member seems inappropriate,” Mersch said. “It might be legally challenged and create a reputational risk should the Single Supervisory Mechanism become subject to litigation.”
EU leaders called for the new supervisor as they sought to tame a fiscal crisis that has forced Greece, Portugal, Ireland and most recently Cyprus to seek international aid. The ECB’s role in the Cypriot bailout was criticized by Sharon Bowles, chairwoman of the parliament’s economic and monetary committee, who asked for more democratic accountability at the Frankfurt- based central bank.
“Central banks have to be tough sometimes, but what hope is there for accountability when they seemingly force decisions like this at gunpoint with no regard for financial legislation,” Bowles said on March 19. “We must question ECB independence on supervision. If anything this strengthens the case for more democratic accountability.”
Under the supervision plans, the ECB will directly oversee around 140 banks, accounting for more than 80 percent of the euro-area banking system in terms of assets.
“There is already an institutional balance in the appointment procedure for Executive Board members, in which the European Parliament opines on nominated candidates,” Mersch said today. “Such an institutional balance could be disturbed by the new veto right.”
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