ECB Counters Germany on Supervisor’s Oversight of Banks

French Finance Minister Pierre Moscovici
French Finance Minister Pierre Moscovici told reporters today, “It’s ambitious, but it’s a particularly important project.” Photographer: Jock Fistick/Bloomberg

European Central Bank Vice President Vitor Constancio said a common bank supervisor under its control would need power over all euro-area institutions, countering Germany’s push to limit central oversight to systemically important firms.

The ECB must be able to assert control over all banks in participating countries, even if the system is set up “in a very decentralized way,” Constancio told EU finance chiefs in Brussels today. Speaking to reporters, German Finance Minister Wolfgang Schaeuble advocated the curbs on its authority.

“We would be against any kind of two-tier system in this respect,” Constancio said during public debate. The Frankfurt-based ECB wants “to retain some powers and right of initiative in the center of the single supervisory mechanism” to deal with imbalances that threaten financial and economic stability.

EU leaders agreed in June and October to move forward with common ECB-led bank supervision to separate financial-sector risks from sovereign debt troubles, with the goal of agreeing on a political framework by Jan. 1. If a common supervisor is set up next year, it would open the door for the euro area’s firewall fund to offer direct aid to banks.

“It’s ambitious, but it’s a particularly important project,” French Finance Minister Pierre Moscovici told reporters today. “This work will still take a few weeks,” though an agreement can be reached by year-end, he said.

Unified System

Moscovici called for a “fully unified” supervisory system when the ECB takes up its new role, a call echoed by Italian Finance Minister Vittorio Grilli. Finance ministers mostly differ on how long it will take to set up the new supervisor, Grilli said, predicting a deal in coming months.

No bank will be left “out of this framework, all are part of it,” Grilli said after the meetings, adding that “the ECB sets the rule and can intervene whenever” it thinks it’s right to act.

Luxembourg Finance Minister Luc Frieden stressed caution. The plan drew skepticism from countries outside the 17-nation euro zone. Sweden’s Anders Borg said there might be a need for “technical treaty change” if the new supervisor is housed at the ECB with the potential to supervise banks outside the currency bloc, as proposed.

Frieden predicted it would take “several more months” to iron out differences on the shape of bank supervision. The EU needs to work out how the supervisor will interact with the entire 27-nation single market and how the European Banking Authority would adapt, he said.

Objective Sought

“It’s necessary first and foremost to decide what is the objective of this banking union,” Frieden said. “If the objective is to intervene when banks are in difficulty, we will find another solution than if it is to replace national authorities. I think we need a mix.”

Luxembourg last week joined Germany, Finland and the Netherlands in seeking broad changes to the EU’s initial proposal, which grants the ECB broad powers. Today, Dutch Finance Minister Jeroen Dijsselbloem said the ECB should wield top authority once the new system is established.

“You should come up with a division of tasks that lets national supervisors do a big part of the work, yet always under ultimate responsibility” of the ECB, Dijsselbloem told reporters. “A group of small banks can cause risks for the financial sector or for the real economy. If those risks occur, the ECB should be able to intervene.”

EBA Role

The ECB’s Constancio pledged that the central bank would not seek an outsized role at the EBA, which handles disputes among regulators from all 27 EU nations. The central bank doesn’t have a view on how EBA voting should look in the future and will accept being treated “like any other supervisor,” he said.

EU Financial Services Commissioner Michel Barnier has proposed a system where the ECB would have final say over all banks within its remit on issues that could affect financial stability, while working closely with national authorities on day-to-day issues.

Barnier urged nations to agree on a political framework quickly during today’s talks. During a press conference, he said the U.K. has raised “legitimate concerns” about EBA voting and that efforts to design specific revisions on this issue are under way.

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