Bloomberg News

Start of ECB Bank Oversight Said to Be Delayed to Late 2014 (1)

June 21, 2013

ECB President Mario Draghi

“We at least want to make sure that there is an explicit commitment by governments, by the European Stability Mechanism and by the Eurogroup to provide a backstop” to deal with capital shortfalls uncovered in the asset-quality reviews, ECB President Mario Draghi said. Photographer: Martin Divisek/Bloomberg

The European Central Bank probably won’t take over as euro-area bank supervisor until the final months of 2014, further delaying the banking union that leaders wanted in place quickly to stem the sovereign debt crisis.

Late next year is now the time line for the transition to the new banking supervision regime, in part because of German approval procedures, according to two European officials who spoke on condition of anonymity because the preparations are ongoing. The new schedule contrasts with an initial goal of moving to the system in March, later pushed back to July.

The Frankfurt-based central bank won’t be able to take up its new role until September at the earliest, ECB Executive Board member Yves Mersch said in an interview with d’Letzebuerger Land newspaper published today. German Finance Minister Wolfgang Schaeuble said yesterday it’s “nonsense” to blame Germany for delaying ECB oversight, as the nation’s approval processes had been clearly set out.

The ECB’s new role will be a turning point for the currency zone because it will follow the central bank’s first-ever look at bank balance sheets, which will start in the fourth quarter of this year and conclude before the new oversight begins. It also may be the start date for new backstop tools such as direct aid from the 500 billion-euro ($660 billion) European Stability Mechanism.

As a result, postponing the new supervision regime could reopen questions about whether EU leaders will follow through on promises to break the link between banks and sovereigns. Over the past three years, five of the euro area’s 17 nations have sought bailouts and investors remain jittery that contagion could flare up again.

‘Easiest Part’

“It matters symbolically and sends out the message that the euro zone is not even able to fix the easiest part of banking union,” said Carsten Brzeski, senior economist at ING Belgium, said by e-mail.

Spanish 10-year bond yields surged the most in 11 months yesterday after the U.S. Federal Reserve’s announcement that it may end bond purchases in mid-2014 disrupted the relative calm on European debt markets that has prevailed since the ECB unveiled its OMT plan last year. The rate on Italian 10-year debt fell 5 basis points today after surging 29 basis points to 4.55 percent yesterday and Portugal’s 10-year yields rose 2 basis points today after jumping 34 basis points to 6.41 percent.

Part of the delay comes from German legislative procedures that limit the European Parliament’s ability to sign off on the legislation. Germany’s lower house, or Bundestag, approved the euro area’s Single Supervisory Mechanism on June 13 and it probably will be voted on in the upper house on July 5.

“The German legislature is not to blame for any delays in Europe,” Schaeuble said after a meeting of euro-region finance ministers in Luxembourg yesterday. “We’ve said early enough that we need ratification for the SSM by means of a legislative process.”

Bank Resolution

That’s right after the European Parliament’s next plenary session, set for July 1-4 in Strasbourg, France. Lawmakers have said they are unwilling to vote on the plans until the German parliament has approved them, and so confirmed it won’t seek changes. As a result, EU lawmakers won’t have a chance to vote until September at the earliest.

The law then requires a one-year transition period, which the ECB can extend at its discretion.

“We still don’t have any final certainty about when the draft law will be accepted by the European Parliament,” Mersch said in the newspaper paper. “Before the European Parliament votes the national procedures have to be completed. If the European Parliament postpones the voting date because of the summer holiday until September, we can only take up our work one year later -- so at the earliest in September 2014.”

To contact the reporters on this story: Rebecca Christie in Luxembourg at rchristie4@bloomberg.net; Jeff Black in Luxembourg at jblack25@bloomberg.net; Rainer Buergin in Luxembourg at rbuergin1@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net


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