Monday

26th Sep 2022

ECB to become bank union supremo

  • Commission President Jose Barroso will today unveil an EU bank union package (Photo: consilium.europa.eu)

The European Central Bank will supervise Europe’s biggest banks from mid-2013, according to the controversial banking union proposals to be announced Wednesday (12 September) by the European Commission.

Under the plans, the ECB will assume supervisory control over the eurozone’s most systemically important banks from July 2013, before covering all other banks from January 2014.

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The proposals, which will be formally unveiled by Commission President Jose Manuel Barroso in his state of the union speech in the European Parliament on Wednesday, are the most radical step taken by the EU to break the link between debt-laden banks and sovereigns.

Meanwhile, in a bid to appease MEPs, angry at the prospect of the Parliament being side-lined from the reforms, the EU executive wants to revise the rules governing the European Banking Authority (EBA), one of three financial sector watchdogs created in 2011.

The move is unlikely to pacify German criticism that the plan would undermine the ECB’s independence and directly conflict with its primary task under the EU treaties of maintaining price stability.

Last week, German Finance minister Wolfgang Schauble insisted that the ECB would not be able to supervise the EU’s banking sector. “The ECB has itself said it does not have the potential to supervise the European Union’s 6,000 banks in the foreseeable future,” he said. Berlin is also likely to demand that its state-owned regional Landesbanks are excluded from the ECB’s remit.

Under the blueprint, the ECB would be given powers to authorise and withdraw banking licenses, apply rules on bank capital requirements and carry out stress-tests and on-site inspection. It would also have oversight on assets bought and sold by banks as well as the right to impose sanctions for non-compliance.

Less clear is the impact of the banking union package on EU countries outside the single currency. The plan states that national regulators in non-eurozone countries would have to work in “close co-operation” with the ECB, raising the possibility of the bank playing a near identical supervisory role in the ten non-eurozone member states.

Green MEP Sven Giegold will pilot the revised EBA regulation in the Parliament’s Economic committee, with the centre-right EPP group claiming responsibility for drafting the assembly’s position on the Council regulation.

Under the legal basis proposed by the Commission for the proposals, from Article 127, the Parliament’s involvement will be limited to a non-binding opinion.

The move has outraged MEPs, who had co-decision powers with Council during negotiations to create the three financial supervisory bodies and the European Systemic Risk Board (ESRB) which came into being at the start of 2011. Some feel that the London-based European Banking Authority would be better suited to act as bank supervisor.

In a resolution to be voted on Thursday, MEPs launched a broadside against the Commission’s plan to leave the banking union plan solely in the hands of governments, claiming that it would undermine democratic legitimacy and accountability.

Denying Parliament an equal say on the legislation would send “a negative signal at a time when the need for more transparency and democratic support is widely acknowledged” according to the committee text.

The Commission will also publish outlines for a road-map to complete the banking union. Legislation to tighten the rules on bank capital requirements and deposit guarantee schemes are currently being negotiated by MEPs and ministers. The EU executive also intends to set up a resolution mechanism for banks facing insolvency.

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.

Analysis

The battle for banking union

The EU commission will next week unveil keenly-awaited proposals on banking union. But Germany is trying to strip the law of its usefulness.

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