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Banks With $39 Billion of Assets Face Direct ECB Oversight

Banks With $39 Billion of Assets Face Direct ECB Oversight
The EU’s finance ministers will meet Dec. 12 in their latest attempt to broker compromises on setting up a single bank supervisor at the Frankfurt-based ECB, which would be mandatory for the 17 euro-zone nations and optional for other EU members. Photographer: Hannelore Foerster/Bloomberg

Banks with more than 30 billion euros ($39 billion) in assets may face direct oversight by the European Central Bank, as the European Union seeks to thrash out compromises on a single supervisor for euro-area lenders before a year-end deadline.

Lenders with total assets larger than 20 percent of their home countries’ economic output, and those with units in at least three other countries covered by the single supervisory system, may also be subject to ECB oversight, according to a document obtained by Bloomberg News.

While national regulators would be expected to carry out day-to-day supervision of “less significant” banks, the ECB could step in “at any time, on its own initiative,” according to the document prepared by Cyprus, which holds the EU’s rotating presidency.

The EU’s finance ministers will meet Dec. 12 in an attempt to broker compromises on setting up bank supervision at the Frankfurt-based ECB that would be mandatory for the 17 euro-area nations and optional for other EU states. ECB oversight is required before banks can directly tap the currency area’s firewall fund, a step that EU leaders have said is key for breaking the link between sovereigns and their banks.

Wolfgang Schaeuble, Germany’s finance minister, has demanded assurances that the ECB will focus on larger banks and won’t seek to usurp the role of national regulators in overseeing smaller lenders.

French Position

Other nations, including France, are calling for the ECB to be given the right to intervene at any bank, saying the system won’t be credible if the ECB lacks far-reaching powers.

More than 40 banks in the euro area have assets of more than 30 billion euros, according to Bloomberg data. These lenders range from Deutsche Bank AG with 2.16 trillion euros in total assets, to Credito Emiliano SpA in Italy with 31.1 billion euros in assets.

According to the Cypriot proposal, the ECB would directly oversee at least two banks in each nation that participates in the single supervisor. It would also play a hands-on supervisory role at banks that have received aid from the bloc’s firewall funds.

Larger banks could escape direct ECB supervision if “justified by particular circumstances” to be defined by regulators, according to the document.

Fully Assume

Under the plans, the ECB would fully assume its role as banking supervisor from Jan. 1, 2014. This could be delayed until later in 2014 if the central bank decides it’s not ready.

Governments are also weighing different ways to change the voting rules of the European Banking Authority to adapt them to the single supervisory system. The EBA, based in London, sets technical standards that apply across the 27-nation EU, and has some power to settle disputes between regulators.

The U.K. has said that the ECB’s oversight powers mustn’t lead to countries that stay outside the system being marginalized in the EBA.

One option would require some EBA decisions to have support from a simple majority of nations both inside and outside the system.

U.K. Chancellor of the Exchequer George Osborne has said that the country has no intention of signing up for ECB oversight.

The text also seeks to address the concerns of non-euro area nations that they would be second-class members of the supervisory system because legally they can’t be represented on the ECB’s Governing Council.

Right to Refuse

The text includes guidance that the ECB Governing Council should meet with representatives of non-euro area nations that participate in the single supervisor in the event of a disagreement.

Vitor Constancio, the ECB’s vice president, said last week that the central bank would be willing to hold such meetings.

The text would also give participating nations from outside the euro area the right to refuse to apply decisions made by the ECB Governing Council if these decisions overrule positions taken by the oversight board. The ECB would then have to decide if the country should be allowed to stay in the system.

Participating non-euro area nations could also object to a proposal by the supervisory board, with the Governing Council to then take a decision on whether it should be applied.

Under the latest proposal, the head of the supervisory board would be appointed by EU finance ministers.

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