ECB Says Euro-Area Banking Supervision May Not Start Until 2014

European Central Bank (ECB) President Mario Draghi
European Central Bank (ECB) President Mario Draghi attends a news conference at the Annual Meetings of the International Monetary Fund (IMF) and the World Bank Group in Tokyo. Photographer: Tomohiro Ohsumi/Bloomberg

The head of the European Central Bank said that common banking supervision in the euro area may not become operational before 2014 even if legislation is in place at the beginning of next year.

“It’s very important that the council regulation enters into force Jan. 1 but that doesn’t mean supervision will be in place on Jan. 1 from an operational view point,” ECB President Mario Draghi told reporters in Tokyo today. “That may well take another year or so. We have to move in time, but we also have to move well.”

The European Union on Sept. 12 unveiled proposals for bank oversight that require unprecedented cooperation between the ECB and national regulators. While the ECB would become the top-level supervisor of every lender in the 17-nation currency bloc, it would depend on national regulators for day-to-day supervision and ensuring that banks comply with European rules.

EU leaders called for a single bank supervisor in June as a condition of allowing euro-area banks direct access to the region’s firewall funds. While they set a start date of Jan. 1, 2013, the ECB is pushing for more time.

Policy makers including ECB Vice President Vitor Constancio and Governing Council member Ewald Nowotny indicated that it would be difficult for the ECB to assume supervisory control over the region’s banks before July.

‘More feasible’

“It’s demanding in July; if it happens by the end of the year it is still OK,” Constancio said in an interview on Oct. 10. “In a way it is more feasible. In some ways it would be easier to start January 2014, to coincide with CRD IV,” the European Union’s capital requirement legislation, he said. “It’s not essential, but it would help.”

Brazilian Finance Minister Guido Mantega urged European policy makers not to procrastinate.

“When all these mechanisms are up and running, we’ll have an excellent economy,” he said today. “It will be a marvel. The question is whether we will survive until then.”

Executive Board member Joerg Asmussen said today the ECB shouldn’t be made responsible for the health of financial institutions unless it can act to defend it.

“I only want to have this at the ECB if it’s fully operational from day one because we’re taking on reputational risk,” he said at a panel discussion today.

Conflict of Interest

Germany’s Bundesbank, the ECB’s largest shareholder, is wary of potential conflicts of interest between setting monetary policy and supervising banks. Board member Andreas Dombret said on Aug. 22 the ECB may jeopardize its independence if it has final responsibility in supervision.

The proposed common supervisor needs to be approved by all 27 European Union 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.

“All countries that are asking to be part of the supervisory system should be part of the system, whether they’re in the euro or not,” Draghi said. “They should be there with equal rights. It’s nice to say but harder to do because there are certain legal issues that need to be resolved.”

Finance ministers from euro-area nations have emphasized the need for national regulators to continue to play a strong role after the ECB takes on its new duties.

“Much of the day-to-day oversight is in fact conducted by national supervisors,” European Union Economic and Monetary Affairs Commissioner Olli Rehn said today. “But the key is the ECB-based euro-area supervisor has the ultimate responsibility to ensure that there are no empty sheets or black holes.”

“It doesn’t mean that the ECB-based supervisor on a daily basis would supervise 6,200 banks in the euro area,” he added.

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