Tuesday

19th Oct 2021

Banking union to put 6,000 banks under ECB supervision

  • Belgium's Dexia, bailed out twice: The ECB supervision should prevent taxpayers' money being used again in bank rescues. (Photo: Valentina Pop)

The European Central Bank will have the "ultimate decision-making authority" on supervising 6,000 euro-area banks, with some day-to-day tasks delegated to national bodies, a commission spokesman has said.

"There is a clear need to cover all banks through a single supervisory mechanism, for all 6,000 banks of the euro-area," Stefaan De Rynck, spokesman for financial issues said during a press conference on Friday (31 August).

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The commission will table proposals on 12 September on granting the ECB sweeping supervisory powers to help early detection of troubled banks and force them to fix their balance sheets before having to ask for public money.

But Germany finance minister Wolfgang Schaeuble has poured cold water on the plan, saying it was a matter of "common sense" that one could not expect a single body to oversee 6,000 different banks. In his view, only big "systemic" banks should come under the direct supervision of the ECB, he wrote in the Financial Times.

German regional banks and savings banks in recent days have also voiced "great concern and irritation" at the EU commission's plans, insisting that they should remain under national supervision. In Germany, banking supervision is shared by the Bundesbank and the Federal financial supervisory body (BaFin).

The commission spokesman, however, said it was important to have all banks under the new supervision scheme, because in recent years "we have seen non-systemic banks popping up and posing systemic risks."

Spain's fourth-largest lender Bankia, which was the result of merged regional banks, is one such case where bad loans piled up unreported, to the extent that the state had to bail them out, as well as Belgium's Dexia, which was bailed out twice by the state.

"The ECB should be given supervisory powers on all matters about financial stability, but national supervisors will continue to play a role, for instance to prepare and implement such decisions," De Rynck said.

"They will also remain in charge of supervisory task on matters not related to financial stability matters, such as consumer protection or overseeing payment services," he added.

As for resolution - who takes over loans and assets of banks gone bust - it will remain the competence of national bodies for now. But plans are being drafted to set up a European resolution authority and a joint fund financed by the banks themselves.

"Resolution is a key point of the new banking model we're looking at, to make sure that tax payers no longer have to pay the cost of restructuring banks," the spokesman said.

The ECB will retain some "links" with these national resolution authorities and possibly some "early-warning" competences so as to force the recapitalisation of banks that become cash-strapped before their problems get out of hand and need a bailout.

In any case, European supervision and resolution authorities will be designed as separate entities, the spokesman added.

He gave no details, however, on how the separation of powers within the ECB will take place, so the bank's core mandate - a stable euro and no inflation - remains unaffected.

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