European Central Bank President Mario Draghi may need to hire hundreds of new staff after governments handed him sweeping powers to supervise the banking industry.
While the ECB will rely on local regulators to oversee the majority of the euro area’s 6,000 banks with total assets of about 33 trillion euros ($43 trillion), it will take on direct supervision of as many as 200 larger lenders and have ultimate responsibility for all banks. Economists said that will require it to significantly expand its fields of expertise by adding to its current full-time staff of around 1,600.
“It’s a very substantial undertaking,” said James Nixon, chief European economist at Societe Generale in London. “To transfer that sort of oversight is going to require a lot of people and a lot of expertise. I’ve seen figures that suggest they’ll need to hire as many as 1,000 people.”
Draghi’s ECB, primarily responsible for ensuring price stability, will take on the oversight duties as part of a so-called European banking union that aims to sever the link between government finances and domestic banking sectors. While Draghi himself won’t chair the new supervisory board, the central bank’s steady accrual of power during the sovereign debt crisis has met with criticism in Germany, where the Bundesbank has warned of a conflict of interest and an erosion of inflation-fighting credibility.
To avoid “potential conflicts of interest,” European leaders agreed that “the ECB’s monetary tasks would be strictly separated from supervisory tasks.” At the same time, they said in a statement that any draft decisions made by the ECB’s supervisory board could be rejected by the Governing Council, which is anchored in European treaties as the supreme decision-making body of the central bank.
“The fact that the Governing Council will be able to outvote the supervisory board may be problematic,” said Juergen Michels, chief euro-area economist at Citigroup in London. “I can see some resistance coming up in connection with this, especially from Germany.”
The ECB has until March 1, 2014, to be ready to fully assume its duties, with the legal framework that will underpin the new role scheduled for completion by the end of February next year.
Draghi today welcomed the new role and said the ECB will meet the deadline envisaged by finance ministers.
“The agreement marks an important step towards a stable economic and monetary union, and towards further European integration,” he said in a statement.
Even though the ECB will sit atop a pyramid of national regulators, the task could require as many as 1,000 new staff in Frankfurt, Kurt Pribil, co-head of Austria’s Finanzmarktaufsicht regulator, said this week.
The ECB needs “relatively quickly some 700 to 1,000 staff, which would have to have the authority on the ground,” he said. “If the ECB had to rely only on local regulators’ staff, an important element of the strengthening would be lost.”
The ECB hasn’t provided estimates on staffing levels yet.
“ECB resources have been discussed and will be discussed in the coming weeks,” ECB council member Erkki Liikanen said at a press briefing in Helsinki today. “The key question is how division of labor will take place between the independent bank supervisor operating within the ECB and national supervisors. It’s clear that there needs to be a core group of supervisors, but a considerable portion, the main portion in terms of numbers, will be at the national supervisors.”
Officials will now seek to establish exactly which banks will come under direct ECB control.
Ministers agreed on central oversight for banks with more than 30 billion euros ($39 billion) in assets or with balance sheets that represent at least 20 percent of a nation’s economic output. The guidelines include at least the top three biggest banks of every participating nation unless “justified by particular circumstances.”
The ECB may not need to hire a lot of new staff immediately, said Jacques Cailloux, chief European economist at Nomura International Plc in London.
“The ECB will start small,” he said. “They will also likely keep the pace of hiring highly linked to the evolution of the discussion around the perimeter of banks falling under their remit.”