European Union finance ministers moved closer to an agreement on a single euro-area bank supervisor that could give the European Central Bank more time to take on its expanded oversight role.
After 12 hours of talks, the ministers early today were considering a March 2014 target date for the new supervisor to be fully functional, or 12 months after the EU publishes regulations to set it up, whichever comes first, according to a draft proposal prepared by Cyprus, which holds the EU’s rotating presidency.
Yet the proposal also allows the ECB unlimited discretion to delay if it wants more time to prepare for its oversight mission.
German Finance Minister Wolfgang Schaeuble and his French counterpart Pierre Moscovici led a chorus of voices yesterday calling for a deal, before a year-end deadline set by leaders aiming to break the link between banking woes and sovereign-debt struggles. Ministers are striving to agree on which banks the ECB will oversee, how to balance the needs of large and small countries and how the new system would affect non-euro lenders.
“I’m confident that we will find a solution today or next week that everyone can agree to,” Schaeuble told reporters on his way into the meeting yesterday. He reiterated Germany’s concern that ECB supervisory duties not interfere with monetary policy and called for a “clear separation” of tasks.
The balance of ECB power has been a key obstacle for finance ministers trying to reach a deal on the single supervisor this month. Joint oversight is a required first step before banks can tap the euro zone’s 500 billion-euro ($652 billion) firewall fund instead of passing through national authorities, as was required in Spain’s financial-sector rescue.
“The outlines of an agreement exist,” Moscovici said yesterday. “It’s very important to wrap up on banking supervision. It’s one of the causes of the crisis, it’s about getting at its roots.”
The most recent proposal would allow participating nations to seek mediation if they disagree with an ECB supervisory decision and simplify procedures for objections from non-euro nations that opt to join the oversight regime. Nations were still wrestling with voting procedures on the ECB’s supervisory board and on the membership of a steering committee within that board.
Finance ministers aim to reach agreement before EU leaders meet later today to begin two days of meetings in Brussels. Draft summit conclusions call for the EU to begin work on a euro-area bank resolution plan once it finishes the single supervisor and other current proposals on how countries handle failing banks and manage national deposit-insurance schemes.
France would be willing to accept bank-size thresholds in order to get the new supervisor up and running, Moscovici said. Nations are closing in on proposals to require direct ECB oversight for lenders with more than 30 billion euros in assets or units in multiple countries, as well as for banks whose total assets are larger than 20 percent of their home country’s gross domestic product.
The ECB would prefer to avoid specific targets and eliminate the multiple-countries threshold, ECB Vice President Vitor Constancio said.
The latest compromise altered the proposal for when cross-border operations would trigger direct ECB oversight. The changes mean fewer banks would be caught by that requirement.
ECB supervision would be required for nations that use the euro and optional for countries outside the currency bloc. Non-euro nations were pressing for concessions on how to handle voting rules at the London-based European Banking Authority, which sets standards and handles disputes among EU regulators.
Early today, finance ministers were on track to agree on a U.K.-backed proposal for divvying up EBA voting rights, according to draft documents. The U.K., home to Europe’s biggest financial center and which won’t join the banking union, has sought a requirement that EBA decisions be taken by so-called double majority voting, so that nations outside the supervisory mechanism can’t be automatically overruled by those who take part.
Limits on the powers of the ECB Governing Council could be set up to reassure non-euro nations that accept common banking oversight, according to a Dec. 9 opinion from the ECB and the European Commission obtained by Bloomberg News. The report also says nations could signal “that a specific point to be addressed by treaty change would be to strengthen democratic accountability over the ECB insofar as it acts as a banking supervisor” as they establish the new oversight regime.
Germany backs current efforts to set up a common supervisor as an “interim solution” until nations can agree on a permanent framework, Schaeuble said. “A limited treaty change would be the better regulation, but that can’t be done overnight,” he said.
When the new supervisor is up and running, the ECB will want to make sure its officials can access all the information they need, said Daniel Gros of the Center for European Policy Studies and Thorsten Beck of the European Banking Center at Tillburg University. In difficult times, they said in a report today, financial stability can be the biggest threat to price stability.
“A strict separation of supervision and monetary policy is not desirable during a financial crisis,” wrote Gros and Beck in a report to the European Parliament’s economic affairs committee. “The key problem hampering the ECB today is a lack of detailed information, which is often highly confidential, on the state of the health of the banking system.”
Swedish Finance Minister Anders Borg said the ECB’s common supervision would leave Europe “more divided” than it has been, by creating a rift between countries inside and out of an emerging banking union. At the same time, he said his nation would not block the single supervisor as long as its concerns as a non-participating nation were addressed.
As the new supervisor takes shape, smaller countries are vying to ensure their vote counts as much as their larger counterparts when the ECB takes supervisory decisions. Tonio Fenech, the finance minister of Malta, said his country was worried about the consequences of its banks being among the smallest institutions referred for ECB oversight.
“When you have to review big companies or big banks, you put in your best people, when you have smaller banks or smaller companies, you put your junior staff,” Fenech said during public debate. “In our case, we are presently having our best people supervising our more important banks in the economy. These will be transfered to the ECB to be supervised by juniors. Sorry, no thank you, I will not risk my economy.”