Euro Banking Union Should Avoid ‘Systemic Danger,’ Prodi Says

The planned common banking supervisor for euro-area countries should cover medium-sized lenders to minimize systemic risks, according to former European Commission President Romano Prodi.

“If you have many medium-sized banks that don’t respect the rules, you have a systemic danger,” Prodi said today in a Bloomberg Television interview near Versailles, France. “How can you exercise control only on 10 banks or let’s say a number like that” while having “the biggest part of the system not respecting the rules?” he said.

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 today, speaking on condition of anonymity because the plan isn’t final. While the Frankfurt-based ECB could decide to withdraw banks’ licenses, 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.