European Central Bank President Mario Draghi said his institution has the competence to supervise the euro region’s banks and sought to lay to rest concerns that it may be overburdened by the task.
“Some observers have suggested that the presence in the same institution of monetary policy and supervisory decisions can lead to excessive burdens, a potential confusion of roles and/or distorted incentives,” Draghi said in a speech at a banking congress in Frankfurt today. While those concerns “must be taken seriously,” building a single supervisor around the ECB “is the only pragmatic” option “in the present circumstances,” he said.
A single supervisor for all 6,000 euro-area banks under the auspices of the ECB is a key plank in efforts to create a banking union and put the currency bloc on a sounder footing. Germany’s Bundesbank has raised concerns about whether the ECB’s new role will compromise its ability to control inflation, and there have also been calls for the ECB to supervise only the biggest banks.
Draghi said “all banks established in participating member states would in principle fall within the remit of the single supervisor,” and he stressed the need for “rigorous separation of monetary and supervisory policies.”
“We are taking this issue very seriously and we have envisaged ways to address it,” he said. “The ECB has the advantage of having a very clear goal of price stability, expressed in a transparent and measurable way. This objective has never been compromised in the 14 years of the euro so far and it will not be compromised in the future.”
While the ECB is scheduled to assume its new powers on Jan. 1, Draghi said it’s important to take “all the time needed” to implement the single supervisor well.
“What is essential is to have the legal basis as soon as possible, ideally on 1 January 2013, so that preparations can begin,” he said.
A single supervisor is a pre-requisite for the euro area’s rescue fund to start directly aiding troubled banks.
Draghi said supervision will work as a decentralized system with a supervisory board at the center comprised predominantly of top representatives from national authorities.
National supervisors “will be prime actors in the framework, not passive performers subject to a central authority, and will contribute with knowledge of national, regional and local banking markets,” he said. “The intensity of centralized supervision will be the highest for those institutions deemed systemically important. But also for these institutions, close cooperation with national authorities on daily activities will remain.”
The role and responsibilities of national supervisors will increase for smaller banks of predominantly national or local relevance.
Draghi said the single supervisory mechanism should strengthen the single European market.
“Therefore, all member states, also the ones that have not adopted the euro, should have the possibility of participating in the single supervisor,” he said. “The ECB will have the legal authority and technical capability to carry out this complex task successfully.”