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Bundesbank Questions Legality of ECB Banking Supervision

The Bundesbank questioned the legality of the European Central Bank becoming a single supervisor for all 6,000 euro-area banks.

It is not clear that article 127 paragraph 6 of the European Union Treaty “allows such a broad transfer of duties,” the Bundesbank said in its 2012 Financial Stability Review published in Frankfurt today. The supervision role must be kept completely separate from monetary policy and “it is doubtful that the granting of decision-making rights to a new body apart from the ECB Governing Council is in agreement with European primary law,” the Bundesbank said.

European leaders in June agreed to hand the ECB powers to oversee all euro-area banks as part of a so-called banking union that would unlock joint recapitalization funds for the region’s ailing lenders. While leaders set a start date of Jan. 1, 2013, the ECB is pushing for more time, saying it may not operationally start to supervise banks before 2014.

The Bundesbank said the assumption of bank supervisory duties by the ECB “requires special measures to avoid conflicts of interest between monetary policy and bank supervision, as well as to avoid impinging on the independence of the central bank.” The ECB’s primary goal of guaranteeing price stability “can’t be endangered,” it said.

Swedish Finance Minister Anders Borg yesterday said EU leaders should consider a treaty change to ensure equitable treatment of all 27 EU nations under proposals for a single bank supervisor.

Weighted Voting

Under the European Commission’s plan, a supervisory panel separate from the ECB’s Governing Council would be responsible for banking supervision.

“In itself the construction of such a panel is to be welcomed,” the Bundesbank said, before going on to say it may not be legal. It added that, “due to the fiscal implications of bank-supervisory decisions, it would be appropriate to weight members’ votes according to the ECB capital key, and not according to the hitherto dominant system of one member one vote.”

Germany is at odds with European authorities on whether the ECB should supervise all euro-area financial institutions or only systemically important ones.

German Finance Minister Wolfgang Schaeuble advocated limiting supervision to big banks. ECB Vice President Vitor Constancio said yesterday in Brussels that the ECB must be able to assert control over all banks in participating countries.

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