Germany Says Much Work Needs to Be Done on EU Banking Oversight

European leaders have several hurdles to overcome before establishing centralized banking oversight that some member states view as essential to resolving the European debt crisis, a German official said.

European officials, who will take up the issue again at a meeting in Brussels on Dec. 3-4, haven’t sufficiently addressed issues regarding which banks to focus on, what powers a central authority should have and interfering with national legal frameworks, the official told reporters today in Berlin. He spoke on condition of anonymity in line with government rules.

Centralized European supervision, which the European Commission has recommended should start work on Jan. 1, is a pre-condition for enabling euro-area bailout funds to recapitalize banks directly. That would forestall mounting bank credit from adding to government balance sheets, short- circuiting a cycle that has compounded the crisis.

Policy makers should prize quality before speed, the German official said. German Finance Minister Wolfgang Schaeuble has said the EU won’t have an operational banking authority before 2014 as the bloc resolves the crisis “step-by-step.”

Germany prefers such an authority to focus on banks that are systemically relevant, rather than dividing its attention among almost 6,000 financial institutions in the bloc, the official said. The European Central Bank, which will house any authority, should also have the resources to extract data and interfere to resolve banking problems, the official said.

The ECB should also establish a strict divide between monetary policy and oversight, while enabling EU member states that haven’t adopted the euro to participate. Proposals for such a component aren’t yet sufficient, the official said.

Policy makers must also resolve the issue of conforming with the legal framework of the various member states, the official said.

To contact the reporter on this story: Patrick Donahue in Berlin at pdonahue1@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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