European Union finance ministers agreed to put the European Central Bank in charge of all euro-area lenders in a deal that paves the way for the currency bloc’s firewall fund to provide direct bailouts to banks.
The accord marks a step toward tightening integration of the monetary union to stem the financial crisis that emerged in Greece in 2009. The policy makers’ goal was to break a vicious circle that undermined confidence in Europe’s banks.
While the agreement marks a breakthrough, “there are still some thorny issues,” Julian Callow, London-based chief international economist at Barclays Plc, said today on Bloomberg Television. “What about the financing, bank resolution, what about deposit insurance,” he said.
The new supervisor should be ready by March 1, 2014, with about 200 banks automatically qualifying for direct ECB oversight, EU Financial Services Commissioner Michel Barnier said at 4:30 a.m. today in Brussels after 14 hours of talks. In the interim, the 500 billion-euro ($654 billion) European Stability Mechanism could aid banks directly using its own procedures and asking ECB supervisors to step in, he said.
EU leaders sought common bank oversight to rejuvenate their crisis-management effort. The heads of state and government, who gather in Brussels today for a regular summit, will be looking beyond ECB supervision to other measures needed to break the links between banking woes and sovereign-debt struggles, such as who should pay to stabilize failing banks.
“I think we’ve agreed on the key points to create a European bank supervision that’s supposed to start in 2014,” German Finance Minister Wolfgang Schaeuble said after the meeting. The legal framework for the new supervisor could be in place by the end of February, allowing the ECB a full year to prepare before taking on its new duties. Today’s agreement opens the way for negotiations with the European Parliament.
The euro slid against the dollar, reversing an early gain. It traded at $1.3053 at 10:35 a.m. in Brussels, down 0.2 percent on the day.
Under today’s agreement, euro-area finance ministers could use the ESM to recapitalize banks directly if they make a unanimous request to the ECB to take over direct oversight of a troubled institution. Finance chiefs will need to develop guidelines for when they might offer aid to banks, instead of going through national governments as they did with Spain’s financial-sector rescue program.
Dutch Finance Minister Jeroen Dijsselbloem said the timing of bank aid remains up in the air. “We did not make any agreement on when banks can expect direct recapitalization from the ESM,” he said.
The oversight deal also lays out size thresholds for banks to get direct ECB supervision once the new system is in place. Ministers agreed on central oversight for banks with more than 30 billion euros 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 balance of ECB power was a key obstacle during the marathon talks. The final proposal includes a mediation procedure for nations that object to positions taken by the ECB’s Governing Council, the Frankfurt-based central bank’s monetary policy committee and senior decision-making body. Monetary policy and supervision decisions will be separate on a day-to-day basis.
Finance ministers also reached accord on a U.K.-backed proposal for divvying up European Banking Authority voting rights. The U.K., home to Europe’s biggest financial center, isn’t joining the banking union and sought a requirement that EBA decisions be taken by so-called double majority voting. That protects nations outside the supervisory mechanism from being automatically overruled by those who take part.
The banking deal is a “good outcome,” said U.K. Chancellor of the Exchequer George Osborne in a statement after the meetings. “It shows that when you go in with a clear and principled argument and you make your case, then you can succeed and that’s what Britain has done tonight.”
Swedish Finance Minister Anders Borg endorsed the deal, saying it strikes a balance between nations that take part in the common oversight and nations that stay out.
“These have been very tough negotiations,” Borg said. “Sweden will remain outside the banking union, but we believe this is a good compromise.”