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19th Aug 2022

Draghi seeks to allay German concerns on banking union

  • ECB chief Draghi wants a "serious" supervisor, that doesn't damage the central bank's reputation (Photo: European Parliament)

European Central Bank chief Mario Draghi on Thursday (6 December) sought to downplay a clash of views with the German government over the scope of a new banking supervisor by suggesting a bigger role for national supervisors when it comes to small regional banks.

Setting up the new supervisor for all 6,000 banks in the eurozone is "crucial" to boost market confidence at a time when eurozone recession is now projected to last well into 2013, Draghi said during a press conference following the monthly meeting of the ECB governing council.

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Worsening prospects for the eurozone economy are "mainly related to uncertainties about the resolution of sovereign debt and governance issues in the euro area," he said.

With the ECB still acting as an intermediary between eurozone banks reluctant to lend to each other, Draghi insisted that "a single supervisory mechanism is one of the main building blocks" in re-integrating the banking system.

EU leaders in June had pledged to agree by the end of the year on the setting up of this supervisory body within the ECB. But Germany has since put the brakes on, with other countries in the more hawkish north - Finland and the Netherlands - also insisting that "quality must come before speed."

Earlier this week, talks between finance ministers broke down as Germany continued to oppose a scheme that would put all banks - large and small - under the ECB supervision.

According to German finance minister Wolfgang Schaeuble, the Frankfurt-based central bank could never be able to muster such a gigantic task.

His views overlap with those of German regional banks, some of which also experienced problems in the 2008 financial crisis.

"We want a supervisory body that is effective, quick and efficient. That can only happen if the supervisor is close to the banks and knows their business, Georg Fahrenschon, head of the German regional savings banks association, told this website.

"So for us it is logical that big banks are controlled at European level and for regional banks, that are close to people and the real economy, the responsibility lies with the national supervisor," he added.

Asked whether he does not see that other banks would take this as a precedent to elude eurozone supervision, Fahrenschon said the answer should not be a "mammoth" authority, but rather improving the performance of national authorities.

But Draghi suggested that while the ultimate responsibility would be held by the ECB, "in practice there will not be much difference" from what the Germans are asking for.

"The ECB supervisor won't be able to supervise 6,000 banks directly. As the size of a bank and its systemic significance decreases, so will decrease the supervision at central level and increase at national level."

He also downplayed the failure to reach a deal earlier this week.

"We have to look at these discussions in perspective: before the summer there was not even an idea about how this supervisor may look like. The discussion has really just started. I am confident we will reach an agreement, the benefits of having a single supervisory mechanism are not disputed."

Franco-German rift derails banking union deal

EU finance ministers will return to Brussels on the eve of the December EU summit next week for last ditch talks on the controversial banking union proposals, after failing to reach agreement on Tuesday.

Agenda

Minimal changes to euro structure at this WEEK's summit

EU leaders gathering for their sixth summit this year are likely to fudge plans for more integration in the eurozone that were originally aimed at calming market fears about the survival of the euro.

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