THE EUROPEAN Central Bank would be given oversight of all 6,000 banks in the euro zone under a plan being drafted by the European Commission.
Under the wide-ranging proposals, which will be presented to EU leaders over the coming weeks, the ECB would oversee all banks that have accessed the EU’s permanent bailout fund, the European Stability Mechanism, from January next year.
Big banks would be subject to central oversight from July 2013 and the system would be extended to all remaining euro zone banks by January 2014.
The plan, which would involve stripping national supervisors of much of their powers, can only be adopted with the approval of all 27 EU heads of government.
The commission’s move follows a decision by EU leaders in June to set up a single banking supervisor centred around the ECB, a plan they hope will help break the link between the euro zone’s debt crisis and struggling banks.
However, the Brussels plan may run into opposition from member states, including Germany, which has argued the ECB should take charge only of institutions vital for the banking system.
Writing in the Financial Times this week, German finance minister Wolfgang Schäuble said that giving the ECB power over only large banks was “common sense”, since it would be impossible for Frankfurt to oversee all financial institutions.
Michel Barnier, the EU commissioner for the internal market, said the system of joint supervision would be a first step towards full European banking union, which would also require the creation of a Europe-wide deposit guarantee scheme and crisis- resolution fund.
“We believe real integrated supervision must apply to all banks. A lot of problems have come in recent years from non-systemic banks such as Northern Rock, Dexia or Bankia,” Mr Barnier told French financial daily Les Echos yesterday.
The ECB would be given “all necessary instruments” to oversee banks effectively and would have ultimate responsibility for all decisions, Mr Barnier said, adding that countries outside the euro zone could subject their banks to the oversight of the ECB voluntarily.
To avoid a conflict between the ECB’s monetary activities and its new supervisory role, the bank oversight would be carried out by an ECB supervisory board – separate from the board of governors – which would report its findings to the European Parliament.
The commission’s blueprint for banking union also envisages the creation of an agency to wind down problem lenders.
“It is clear to me that we need to create a European resolution authority separate from the supervisor as part of my commitment to make sure that banks themselves and not taxpayers pay for failing banks,” Mr Barnier said.
The commission will present a detailed proposal on bank supervision on September 12th. Mr Barnier said that, with agreement, banks could be financed directly by the ESM from early 2013.
