EU Split on Pace for ECB Bank Oversight as Germany Urges Caution

EU to Seek ECB Oversight of All Euro-Area Banks to Curb Risk
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 single-currency area’s firewall funds. Photographer: Hannelore Foerster/Bloomberg

The French and Belgian finance ministers pressed for rapid progress toward common European bank oversight during talks in Cyprus, while Germany cautioned against rushing to enact the plan.

“It is important to keep up the pace,” Belgian Finance Minister Steven Vanackere told reporters today in the Cypriot capital Nicosia before European Union finance ministers convened to discuss the plan for a single supervisor, with its promise of direct aid for troubled lenders.

EU leaders called for a single supervisor in June as a condition for allowing euro-area banks direct access to the region’s firewall funds. Vanackere said the European Central Bank needs to take up this new role quickly to support the 17-nation bloc’s biggest and most troubled banks.

“It would be obvious that it would then encompass systemic and state-supported banks first and is rolled out further,” Vanackere said. This first group of banks would include Dexia SA, which is being broken up by the French and Belgian governments and has received more than 50 billion euros ($65.7 billion) in state guarantees.

The European Commission is pressing to finish debate on bank supervision this year so the ECB can assume the role in January. German Finance Minister Wolfgang Schaeuble said the EU risks a backlash from financial markets if it takes longer than expected to enact the plan.

‘Raise Expectations’

“My concern is always that there is the risk to raise expectations with financial-market participants that can’t be fulfilled later,” Schaeuble told reporters yesterday. “I don’t see the possibility of a direct bank capitalization from the European Stability Mechanism as of Jan. 1.”

Germany has broadly backed the banking union plans, while emphasizing the need for national regulators to monitor most of the euro area’s more than 6,000 banks. The U.K. has voiced concerns that it and other non-euro nations might be drowned out of financial rulemaking if the plan goes through as offered.

Schaeuble’s call for careful deliberations, along with strong conditions for countries whose banks receive aid, contrasted with France’s plea for speed. French Finance Minister Pierre Moscovici said EU leaders agreed to the clear aim of a rapid setup.

“The direction set by the European Council is very clear,” Moscovici told reporters. “It’s to complete the discussion in 2012 and to go fast. Otherwise everything remains theoretical and our problems are concrete.”

Capital Injections

The EU can’t afford to “waste time” in its efforts to tame the crisis, he said. “There’s no reason for us, the member states, to drag our feet. The crisis is there and is affecting everybody, including Germany.”

EU taxpayers have provided 4.5 trillion euros in capital injections, guarantees and other forms of support to their lenders since 2008, exacerbating strains on public finances that have led Greece, Portugal, Ireland, Spain and Cyprus to seek external aid. ECB President Mario Draghi and the Brussels-based commission want the single supervisor to be the first step in separating bank backstops from national balance sheets.

Luxembourg Finance Minister Luc Frieden said a common supervisor shouldn’t be considered in isolation.

“It’s very important that if we do a banking union that we analyze also the issues regarding the resolution fund, that we analyze the issue of fiscal backstops,” Frieden said in an interview. “We have to see how in a single market, where there is the European passport of financial services, there will be an interaction between those countries that are in the euro zone and those that are outside.”

Common Supervisor

The proposed common supervisor needs to be approved by all 27 EU members. Non-euro members would be allowed to opt in, there also are proposed safeguards to keep the ECB from dominating disputes among the bloc’s supervisors.

Schaeuble said nations whose banks want to tap the fund must also hold talks with euro-area authorities.

“Even when there’s a European banking supervision authority, for a bank capitalization to happen the member state always has to not only make a request, but also agree on the necessary memorandum of understanding with the necessary macro-economic adjustments,” Schaeuble said. “Conditionality is not annulled.”

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