Thursday

23rd Nov 2017

Ministers at odds on banking supervision

  • Troubled Spanish banks like Bankia would come under ECB supervision (Photo: Carlos Blanco)

Finance ministers on Tuesday (13 November) remained at odds over how to include non-euro countries in a planned banking supervision scheme for the eurozone, making a 1 January deadline increasingly unlikely.

Sweden led the charge against the plan tabled by the EU commission, which is aimed at setting up a new supervisory body within the European Central Bank and gradually extending its oversight on the 6,000 banks in the eurozone.

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At the core of the problem is how to include the euro "outs" in the supervisory scheme if they want to opt in, given that the governing council of the ECB is legally a eurozone-only body.

"Either the treaty is changed so that each member state is treated equally, or the supervisory body will have to be placed outside the ECB," Swedish finance minister Anders Borg told journalists after the meeting.

Treaty change is a taboo among EU decision makers, as it takes years to negotiate and can be rejected in national referendums.

The EU commission sought to reconcile the position of the 'outs' with the legal limitations of the ECB board by suggesting that most of the decisions would be rubber stamped anyway and that on the actual banking supervision panel - a new body to be set up within the ECB - all member states would be represented equally.

"But there are still concerns and we will work on them, hopefully still being able to meet the 1 January deadline," internal market commissioner Michel Barnier said in a press conference after the meeting. In any case, the new body would be set up gradually in 2013-2014, so that "quality" prevails over "speed", he said reflecting a long-standing German demand.

He also poured cold water on hopes that once the new body is set up, troubled banks in the eurozone would be able to tap the bailout fund. "That is a necessary, but not a sufficient condition," he said.

The idea of a centralised banking supervisor for the eurozone was a precondition for Germany to agree in June to the prospect of opening the bailout fund to troubled banks, as a measure to help Italy and Spain lower their borrowing costs.

But since the ECB then unleashed a more forceful plan of "unlimited" bond buying for any troubled euro country once it signs up to a reforms plan, Spanish and Italian borrowing costs decreased and the pressure to quickly agree a banking supervision scheme eased.

In addition, Germany now feels that the Barnier plan is "too French", according to one source, as it "delegates" powers to national supervisors. This means that if something is again covered up at national level - as was the case with Spanish regional banks - the ECB would not know in time.

Instead, Berlin would like to see real auditing powers, even if it means that the ECB would have to start with fewer, bigger banks.

Critics say that is just a way to deflect supervision from Germany's own small regional banks which also needed to be bailed out after the 2008 financial crisis.

ESM bank bailouts will not happen soon, says Schaeuble

German finance minister Wolfgang Schaeuble Monday reiterated that no bank recapitalisation could take place until the EU's planned banking union is up and running but admitted "Spain can't wait that long".

Commission warns Italy over high debt level

The Italian government must demonstrate it is making an effort, or the EU will consider launching a procedure. France and Romania are also under scrutiny.

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