Bundesbank Vice President Sabine Lautenschlaeger cast doubt on Europe’s ability to set up a fully operational single European banking supervisor by mid-2014.
“I believe that you will need more than one year to develop an optimally designed supervisor that’s fully functioning,” Lautenschlaeger told journalists at an event in Frankfurt last night. “That doesn’t mean that you can’t be ready by the middle of next year to start. You grow into it. But it is ambitious.”
Euro-area finance ministers this month endorsed plans to hand supervision powers to the European Central Bank, the first step toward the banking union that European leaders agreed on last year. Officials including ECB President Mario Draghi have called for the Single Supervisory Mechanism to be complemented by a European Resolution Authority.
“I’m convinced that we need a European resolution for the long haul but there is a question whether this is doable under the current laws,” Lautenschlaeger said. “I’m realistic enough to see that we might need a treaty change.”
German Finance Minister Wolfgang Schaeuble told his counterparts this month that there isn’t enough of a basis in the European Union’s current rulebook for building a common authority and fund for bank failures. Other nations, including France, Luxembourg, and Denmark, are urging swift progress on putting in place a resolution system, amid concerns that treaty changes would cause unacceptable delays.
With a treaty change “we could tackle the optimal design of supervision with a proper separation” from monetary policy, Lautenschlaeger said.
“Since Germany has two supervisory institutions, the Bundesbank and Bafin, clearly both should be represented” in the supervisory board “and they should exercise their voting right together,” she said. “That ensures that the German position is represented stringently and consistently.”
Of the 130 banks the ECB will supervise directly, 25 will be German, Lautenschlaeger said.
“The situation of German banks is relatively comfortable and overall, German banks have neither a problem with liquidity nor with capital in the short term,” she said. “In contrast to many other economies, we don’t see indications for a credit squeeze or a tightening of credit standards.”
Still, most recent data for systemically important banks don’t suggest there will be a trend reversal to higher earnings, Lautenschlaeger said. “The trend of lower earnings will be a challenge for banks and banking regulation in the long term.”
While Europe missed the target date of Jan. 1 this year to introduce Basel III, it will do so “step by step in 2014 at the latest,” she said. “I’m confident and I expect that this will also happen in all important financial centers. Unequal competitive conditions can create regulatory arbitrage.”
Lautenschlaeger and Bafin president Elke Koenig told the Federal Reserve board in an April 26 letter that they oppose a proposed rule aimed at compelling large foreign bank holding companies to hold more capital and liquidity in their U.S. subsidiaries.
“It’s not my job to propose special provisions to the U.S. for its national legislation,” Lautenschlaeger said. “I’m in favor of a globally coordinated framework so that we have a level playing field and no regulatory arbitrage. I don’t believe that you will get anywhere with national rules in such an interconnected market.”
Lautenschlaeger also said that officials might agree on further minor changes to the liquidity coverage ratio requirement for banks.
“I assume that it will remain unchanged in its core but there may be small changes in details, both at the global and the European level,” she said.
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