ECB Lays Out Timetable for Single Euro-Area Bank Supervision

The European Central Bank said it expects to assume full supervision of all euro-area banks by the start of 2014 and that there is no need to change the law to accommodate its new role.

In a legal opinion on the proposed single supervision mechanism published today, the Frankfurt-based ECB set out a timetable and stressed the need for governments to reach agreement on the plan by the end of the year. It batted away the concerns of Germany’s Bundesbank about the legality of the new supervisor, saying the current European Union treaty provides “the appropriate legal basis for rapidly and effectively conferring specific supervisory tasks upon the ECB.”

European leaders in June agreed to hand the ECB powers to oversee all 6,000 euro-area banks from Jan. 1, 2013, as part of a so-called banking union that would unlock joint recapitalization funds for the region’s ailing lenders. The ECB said today that while the necessary regulation should enter into force on that date, operational implementation would occur gradually over the course of 2013 with “full implementation by Jan. 1, 2014.”

The ECB “stresses the importance” of reaching agreement on the supervision proposals by the end of 2012 to “maintain the envisaged timetable,” it said.

The ECB called for the creation of a single resolution mechanism to complement the single supervisor and “achieve a well-functioning financial market union.” A resolution authority “should be established -- or at least there should be clear deadlines for its establishment -- when the ECB assumes its supervisory responsibility in full,” it said.

Conflict Concerns

There are concerns that the new role may present a conflict of interest for the ECB and compromise its ability to contain inflation.

The Bundesbank this month questioned the legality of the ECB assuming bank supervision responsibilities, saying it’s not clear the treaty allows for “such a broad transfer of duties” and that granting decision-making rights to a new body within the ECB may breach the law.

“There should be a strict separation between the ECB’s new tasks concerning supervision and its monetary policy tasks assigned by the treaty,” the ECB said in the legal opinion. “The ECB will establish appropriate internal rules and procedures to ensure adequate separation within the functions supporting these tasks.”

A single supervisor is a pre-requisite for the euro area’s rescue fund to start directly aiding troubled banks.

The ECB welcomed the “inclusion of all credit institutions” under the single supervisor, saying this is “important to preserve a level playing field among banks and prevent segmentation in the banking system.”

To contact the reporter on this story: Gabi Thesing in London at gthesing@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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