The European Central Bank would have the sole power to grant banking licenses under proposals to give it supervisory powers and build a euro-area banking union, a European Union official said.
The ECB would have a monopoly on granting all bank licenses within the 17-nation euro area under the draft rules, due to be unveiled on Sept. 12, the official said, speaking on condition of anonymity because the plan isn’t final. This means the ECB could decide to withdraw banks’ licenses, although national regulators would still control when to shut down a lender.
Under the proposals, which are being drafted by the European Commission, the EU’s regulatory arm, the ECB would also gain discretion over which banks to supervise directly and when it will delegate day-to-day oversight responsibilities, the official said.
National regulators will retain control over when and how to close a bank under the proposals. At the same time, the central bank would be able to make recommendations and have a voice in the process, and it will have authority over setting capital requirements.
“The ECB should be given full supervisory powers related to financial stability,” Stefaan De Rynck, a spokesman for Michel Barnier, the EU’s financial services chief, told reporters today in Brussels. National regulators should remain in charge of some other tasks, including consumer protection and payment services, he said.
If adopted, the proposals would be a major step toward creating an EU-wide financial services framework that can override national self-interest. EU officials want the ability to rein in local banking systems that have proven as big a source of systemic risk as their larger, internationally operating counterparts.
“It was not systemically important banks that felled Spain, it was the heavily politicized regional cajas,” said Nicholas Spiro, managing director of Spiro Sovereign Strategy in London.
German bankers already have begun to speak out against the project. Stephan Goetzl, president of cooperative banks in the German state of Bavaria, said today he rejects calls to subject cooperative lenders to supervision by the European Central Bank, saying nations would lose their ability to influence credit availability for smaller companies.
Germany is prepared to accept that the ECB becomes supervisor for all banks in the euro area on condition that the vast majority of tasks are delegated back down to the national level, said a German official.
This would fulfil the German government’s aim of keeping supervision of local savings banks at the national level, said the official, who couldn’t be identified because the talks are private.
Romano Prodi, a former president of the European Commission and ex-Italian prime minister, said today that the euro-area bank-supervision plan shouldn’t be limited to the largest lenders.
“If you have many medium-sized banks that don’t respect the rules, you have a systemic danger,” Prodi said in a Bloomberg Television interview near Versailles, France.
The 10-year German bund extended losses on news of the ECB’s proposed powers, as did Finnish and Dutch debt of the same maturity. European Financial Stability Facility 10-year bonds also fell. The euro extended gains, trading at $1.2586 at 5:52 p.m. in Brussels, up 0.6 percent on the day.
Euro-area leaders in June decided to create a common bank supervisor and beef up the ECB’s oversight role to pave the way for direct bank bailouts from the currency area’s firewall fund. The currency zone’s debt crisis, now in its third year, has forced Ireland, Greece, Portugal and Cyprus to seek broad-based aid, while the Spanish government was granted as much as 100 billion euros ($126 billion) to recapitalize its beleaguered banking system.
The euro area should continue to rely on national authorities to handle the recapitalization and winding down of failing banks, De Rynck said. In time, the EU will make proposals to transfer some of these powers to a European-level authority that would be separate from the ECB, he said.
“There have to be links between the supervisory work that detects risk that can lead to resolution later on,” De Rynck said. The resolution process itself will need to be handled nationally, he said.
The proposals, which De Rynck said the commission would like to wrap up by year-end, call for the ECB to have ultimate decision-making authority for all banks in the euro area. The ECB would be part of a “supervisory mechanism” that includes national regulators, who will take part in preparing and implementing decisions that affect their banks.
“The actual day-to-day verifications of what is happening in banks, day-to-day supervisory tasks, obviously that will differ for types of banks but that will be up to the single supervisory mechanism to take such decisions,” he said.
Countries that are not part of the euro area would be able to join the oversight regime voluntarily, under the proposal, an EU official told reporters in Brussels.
At the European Banking Authority, a London-based agency that handles disputes among European regulators, the ECB would speak for the euro area on financial stability and national regulators would represent their nations on other areas.
Talks are under way about how the EBA’s voting procedures might change to protect the interests of non-euro area nations.
The commission’s proposal calls for the central bank to have early intervention powers for banks that run into trouble, the official said.
The EU will unveil a proposed timeline along with the plans. The official told reporters there would be three elements to the announcement: a proposal on the ECB’s new role, a policy paper on banking union, and legislation to incorporate the ECB’s new role alongside that of the EBA in existing regulations.
ECB Executive Board member Joerg Asmussen said in a speech this week that the central bank should be equipped with “all the necessary instruments to effectively exercise banking supervision” including “intervention powers” and “the right to close down unviable banks.”
German Finance Minister Wolfgang Schaeuble said the ECB will need to focus its direct oversight on banks that can pose a systemic risk to Europe. He made the comment in an op-ed published today in the Financial Times.
This sort of triage is “common sense,” he said. “We cannot expect a European watchdog to supervise directly all of the region’s lenders -- 6,000 in the euro zone alone -- effectively.”
Schaeuble also said bank supervision needs to be accountable to the European Parliament and the council of European leaders. He called for safeguards to be set up so that the ECB maintains its independence on monetary policy matters.