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22nd Jan 2022

Ministers hoping to bridge divide on EU banking supervision

  • The ECB is set to become supervisor of the eurozone banking sector (Photo: Valentina Pop)

EU finance ministers are meeting Wednesday afternoon (12 December) in a bid to reach a deal on rules making the European Central Bank the single supervisor of the eurozone banking sector.

“There are five issues that need to be tweaked", according to one senior EU official.

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They include the voting system in the existing pan-EU banking regulator (EBA) and the decision-making process in the supervisory board of the European Central Bank.

There is also expected to be discussion on which banks the ECB will directly supervise.

The Frankfurt-based bank is expected to oversee significant banks, as well as those having received public money and those with cross-border operations.

However, it is not clear what significant means in terms of prompting the Frankfurt supervision. The current draft proposal would classify a 'significant' bank as having for assets worth at least €30 billion or 20% of national GDP, although some governments, including Germany, are bidding for a figure close to the $50 billion threshold used in the US.

The rest of the banks will remain under national supervision but the ECB is likely to have the “legal right” to step in if it wants to.

Negotiations are also expected on maintaining the independence of the bank as well as when the single supervisory mechanism (SSM) should come into force by putting in place a 'Chinese wall' to clearly demarcate the ECB's monetary policy role from bank supervision.

The law governing the SSM is expected to come into force mid 2013 with the ECB to assume the role in 2014.

Current wording allows for the bank to defer its supervisory role until April 2014 if it feels it is not ready.

However pressure from Germany and others may see this potential deferring period extended until July 2014.

But despite the outstanding points, diplomats are relatively confident that finance ministers will reach a deal – if only because no one has much appetite for seeing the issue come to the table of EU leaders, meeting in Brussels for their December summit on Thursday and Friday.

"Clearly the overall success of the summit and of the work this autumn will be very largely judged on whether there is agreement tonight on a single supervisory mechanism,” said one diplomat.

“I am pretty confident that we will find a solution,” said another.

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