Czechs Oppose EU Banking Union Plans as Risk to Local Banks

The Czech Republic opposes plans to create a banking union in Europe as such steps would pose a threat to the country’s financial industry, Prime Minister Petr Necas said.

The government is also against a possible weakening of regulatory powers held by the Czech central bank, Necas told reporters today. Some of the proposals put forward by the European Union present “substantial” risks to the Czech financial stability, central bank Governor Miroslav Singer told a conference today in Prague.

A 10-year road map, released yesterday by four officials led by EU President Herman Van Rompuy, centered on common banking supervision and deposit insurance and a “criteria-based and phased” move toward joint debt issuance. It also suggests that the EU could impose upper limits on annual budgets and debt levels of nations that use the euro.

“My mandate, approved by the government, stipulates not to accept those proposals that have been so far circulating in the media,” Necas said. “We clearly stated that some parts, such as a banking union, could be very damaging to the Czech economy, where 95 percent of the banking market is operated by subsidiaries of foreign institutions.”

EU Proposals

Proposals to reshape the crisis-struck euro area were criticized by Germany for putting too much emphasis on debt sharing and too little on controlling national budgets. Germany’s opposition lessened the chances that a June 28-29 summit -- the 19th since the debt crisis broke out in early 2010 -- will point the way out of the turmoil that threatens to splinter the euro currency.

Van Rompuy collaborated on the proposals with European Central Bank President Mario Draghi, European Commission President Jose Barroso and Luxembourg Prime Minister Jean-Claude Juncker, who manages meetings of euro finance ministers.

The Czech Republic’s banking industry is controlled by units of western institutions including Erste Group Bank AG, KBC Groep NV and Societe Generale SA. It opposes efforts to transfer banking supervisory powers to a multinational level.

“For this country, for its financial stability, some of the things that have been proposed on the European level in the past two weeks present a substantial medium-term risk for the financial stability,” Singer said.

The Czechs didn’t have to bail any banks during the global financial crisis as the amount of toxic assets accounted for less than 1 percent of all assets, according to central bank data. Deposits in the country’s banks exceed loans, protecting them against a funding freeze from their western owners which are selling assets and raising capital to meet more stringent regulatory requirements.

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