Thursday

23rd Feb 2017

Analysis

The battle for banking union

  • AIB - the bailed-out Irish bank - under a European banking supervisor, would its problems have been spotted earlier? (Photo: Matt Buck)

In their last meeting before the summer break, EU leaders spoke about the need to break the "vicious link" between banks and sovereigns. The kind that allowed lenders to take unnecessary risks while local politicians conveniently looked the other way.

Now, just one week before a legislative proposal is to be tabled, the "vicious link" is in danger of being allowed to stay. And if it does, it will be down to significant lobbying by German Landesbanken and Sparkassen. In other words, the system will have lobbied to keep the system.

Dear EUobserver reader

Subscribe now for unrestricted access to EUobserver.

Sign up for 30 days' free trial, no obligation. Full subscription only 15 € / month or 150 € / year.

  1. Unlimited access on desktop and mobile
  2. All premium articles, analysis, commentary and investigations
  3. EUobserver archives

EUobserver is the only independent news media covering EU affairs in Brussels and all 28 member states.

♡ We value your support.

If you already have an account click here to login.

At stake is whether a single banking supervisor should oversee all 6,000 euro-area banks.

Berlin wants only big banks to be directly monitored. The rest, as finance minister Wolfgang Schaeuble recently wrote in the Financial Times, are to be treated differently.

The European Commission has said it will work out a compromise with Germany.

But in doing so it risks completely stripping the proposal of any of its usefulness.

It is not large banks, such as Deutsche Bank, where scrutiny is a problem, but much rather their smaller regional cousins.

Key issues that that will have to be dealt with in the banking proposal include how often banks are checked. Will it be on a weekly or monthly basis? Will the European Central Bank - the likely supervisor - give explicit orders or just make suggestions? Will Frankfurt will able to close down a bank? If so, in what circumstances and who will foot the bill?

At Germany's insistence, what is likely to emerge next week is a half-baked solution. There will be a European supervisor. But the national supervisors will ultimately hold sway.

This will essentially mean that no interfering and no much-needed light will be shined on Sparkassen or on any other small or medium bank in the eurozone. They will continue to operate under the scrutiny radar.

If this is the case, it will be go down as yet another of the eurozone's sticking plaster solutions.

More broadly, it will undermine Germany's case for closer political integration - ultimately involving treaty change - in the EU.

Berlin has been arguing to its somewhat mutinous euro partners that more scrutiny powers, particularly over national spending, need to be given to Brussels.

This, it says, would give confidence to the markets and prevent such a eurozone crisis from occurring again. Much the same case could be made for a European banking supervisor with bite.

Banking union to put 6,000 banks under ECB supervision

The European Central Bank will have the "ultimate decision-making authority" on supervising 6,000 euro-area banks, a commission spokesman has said. But Germany would like fewer banks included in the new system.

ECB to become bank union supremo

The ECB will supervise Europe’s biggest banks from mid-2013, according to controversial banking union proposals to be announced Wednesday.

Greece and creditors break bailout deadlock

Athens agreed on budget cuts worth up to €3.6 billion and extracted some concessions from creditors, but the IMF warned the package might not be enough.

News in Brief

  1. Belgian nuclear plant made 'significant progress' on safety
  2. Report: Commission gauging EU support for Poland sanctions
  3. Irish PM expected to quit amid police scandal
  4. After Brexit vote, 100,000 UK firms registered in Ireland
  5. Bayrou to support Macron in French presidential election
  6. British by-election tests Ukip strength after Brexit
  7. Romanian parliament buries controversial corruption decree
  8. Dozens drown off Libyan coast

Stakeholders' Highlights

  1. QS World MBA TourMeet with Leading International Business Schools in Paris on March 4th
  2. Malta EU 2017Economic Governance: Agreement Reached on Structural Reform Support Programme for Member States
  3. Socialists & DemocratsWomen Have to Work Ten Years Longer to Match Lifetime Earnings of Men
  4. Counter BalanceTrans-Adriatic Pipeline Is a Major Risk for Banks, Warns New Analysis
  5. Martens CentreEU and US Migration Policies Compared: Join the Debate on February 28th
  6. Swedish EnterprisesTechnology and Data Flows - Shaping the Society of Tomorrow
  7. UNICEFNearly 1.4 Million Children at Risk of Death as Famine Looms Across Africa and Yemen
  8. Malta EU 2017End of Roaming Fees: Council Reaches Agreement on Wholesale Caps
  9. Nordic Council of MinistersNordic Innovation House Opens in New York to Help Startups Access US Market
  10. Centre Maurits CoppietersMinorities and Migrations
  11. Salzburg Global SeminarThe Child in the City: Health, Parks and Play
  12. UNICEFNumber of Ukrainian Children Needing Aid Nearly Doubles to 1 Million Over the Past Year