Germany Leads Push Against March to ECB Bank Oversight

Germany Leads Push Against French March to ECB Bank Oversight
German Finance Minister Wolfgang Schaeuble said it will take time to build the “sizeable apparatus” required for the ECB to oversee more than 6,000 euro-area financial institutions. Photographer: Jock Fistick/Bloomberg

German Finance Minister Wolfgang Schaeuble led criticism of the euro area’s rush toward common bank oversight as France, Spain, Italy and the European Commission pressed for speedy action.

European Union finance ministers were sharply divided over proposals to introduce a single supervisor in January within the 17-nation currency zone. Schaeuble, backed by ministers from Sweden, the Netherlands and Poland, said the EU must be cautious before the European Central Bank takes on its supervisory role, with the promise of direct bank bailouts from the euro’s firewall fund.

Schaeuble said it will take time to build the “sizeable apparatus” required for the ECB to oversee more than 6,000 euro-area financial institutions. Banks that could pose broad risks should move to the new system first, he said.

“We plead very much that stress tests be conducted before systemically-relevant banks get transferred from the national supervisor to the European,” Schaeuble told reporters yesterday after the meeting of ministers in Nicosia, Cyprus.

Schaeuble’s comments raised the prospect of excluding troubled banks from the new supervisor’s purview. Stress tests could be used to limit taxpayer exposure to losses, similar to requiring physical examinations for people who want to buy health insurance, Guntram Wolff of the Brussels-based Bruegel research institute said in an interview in Nicosia.

Health Checks

The German finance minister did not mention such health checks in the negotiating room yesterday, according to two officials who sat in on the deliberations. The Brussels-based European Commission wants troubled banks that already receive government aid to be in the first group of lenders to come under ECB oversight.

Germany has broadly backed the banking union plans, while emphasizing the need for national regulators to monitor most of the euro area’s banks. “As far as the issues are concerned, we’re not that far apart,” Schaeuble said.

EU leaders called for a single supervisor in June as a condition for allowing euro-area banks direct access to the euro are’s 500 billion-euro ($656 billion) permanent bailout fund, the European Stability Mechanism. Spain, in the early stages of a 100 billion-euro bank bailout, would benefit if the new system is in place fast enough to take over capital injections into Spanish lenders.

“We need to stick to the timetable,” Spanish Finance Minister Luis De Guindos told reporters. “The objective for now has to be ambitious.”

‘Ambitious Timetable’

French, Belgian and Italian finance ministers also pressed for rapid progress. “We can’t waste time,” French Finance Minister Pierre Moscovici said.

“We, the government, absolutely support the project and the commission’s ambitious timetable,” Italian Finance Minister Vittorio Grilli said at a press conference.

It is “obvious” that the new system would apply first to systemic and state-supported banks, Belgian Finance Minister Steven Vanackere told reporters. This initial 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 in state guarantees.

“It is important to keep up the pace,” Vanackere said.

The European Commission is pressing to finish debate on bank supervision this year so the ECB can assume the role in January. EU Financial Services Commissioner Michel Barnier defended the “ambitious” timetable, telling reporters “it’s possible and it is necessary.”

Oversight Systems

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.

The ECB is investigating ways to allow non-euro members to have a say in oversight decisions if they volunteer to sign on to the common system, said ECB Vice President Vitor Constancio. He also pledged the ECB would abide by decisions taken by the European Banking Authority, a London-based agency that mediates disputes among financial regulators.

Swedish Finance Minister Anders Borg said his nation opposed the common supervisor because it didn’t include enough protection for those outside the currency union.

“It’s undesirable and not acceptable to have the ambition to take these decisions by year-end,” Borg said. “There are some fundamental problems here where we cannot really assess the risk.”

Capital Injections

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.

Ministers from euro-area nations emphasized the need for national regulators to continue to play a strong role after the ECB takes on its new duties. The U.K., which has voiced concerns that it and other non-euro nations might be drowned out of financial rulemaking if the plan goes through, mostly stayed on the sidelines. Chancellor of the Exchequer George Osborne did not comment publicly.

Luxembourg Finance Minister Luc Frieden said euro-area efforts to create a common bank supervisor should take place alongside talks on how to backstop bank deposits and when to shut down failing banks.

Frieden said the ECB could be phased in as the common supervisor, without necessarily taking up an immediate mandate over all of the banks in the currency zone.

“Luxembourg believes that all banks should come under the ECB supervision, but for practical reasons there might be a need to adopt a step by step approach,” Frieden said in an interview. “This also depends on the other aspects that we believe should be discussed in parallel, such as resolution and deposit guarantee.”

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