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ECB Oversight Failures May Lead to Damage Claims Under EU Plan

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ECB Oversight Failures May Lead to Damage Claims Under EU Plan
Under the accord, the European Central Bank could directly supervise any banks it chooses, while leaving day-to-day oversight of other lenders in the hands of national regulators. Photographer: Ralph Orlowski/Bloomberg

Jan. 28 (Bloomberg) -- The European Central Bank may be vulnerable to lawsuits and claims for damages if it fails in its duties as a bank supervisor, according to documents prepared by European Commission officials.

Once the ECB has oversight powers, it will face liability rules similar to those that apply to national banking regulators, according to a Jan. 14 document obtained by Bloomberg News. The ECB will also face similar checks and controls to national regulators when it seeks to force banks to raise more capital, a second document dated Jan. 10 showed.

Under the proposal, the ECB “may be held liable for illegal action or inaction,” according to the Jan. 14 document. Liability could apply in cases where the ECB fails to replace a struggling national supervisor in carrying out day-to-day oversight of a bank or to withdraw the authorization of a bank that breaches its regulatory obligations.

EU finance ministers reached an accord last month to put the ECB in charge of supervising all euro-area lenders in a deal that paves the way for the currency bloc’s firewall fund to provide direct bailouts to banks.

Under the accord, the ECB could directly supervise any banks it chooses, while leaving day-to-day oversight of other lenders in the hands of national regulators. A final deal on the law must be negotiated by governments and the European Parliament.

The commission documents obtained by Bloomberg News are intended as a contribution to negotiations between governments and EU lawmakers.

Capital Requirements

On bank capital, the ECB would be expected to comply with constraints on regulators that are included in EU law.

A bill on overhauling capital rules is also being negotiated by national governments and the EU Parliament. Drafts of the law include procedures that supervisors should follow when seeking to raise requirements on their banks in order to tame a credit boom and avert a financial crisis.

According to the Jan. 10 document, should the final law include a requirement for regulators to check with the commission before applying some types of extra so-called macro-prudential rules to their banks, this would also apply to the ECB.

To contact the reporter on this story: Jim Brunsden in Brussels at jbrunsden@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net

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