17 July 2012

Christian Noyer: "A Europe that is based on money is simply not enough"

In an interview with Handelsblatt, French Central Bank Governor Christian Noyer said that if a concept for a full range of banking supervision in the eurozone could be agreed upon, the ECB could start acting as supervisor straight away.

Translated from the German

HB: The topic of the day is the creation of a European banking supervision. Is this part of the original problem with the monetary union?

CN: What we have recognised during the crisis is that supervision is best located near or at the central bank, or supported by it. Today the supervision in 14 of the 17 euro area countries is either in the hands of the central bank or in the vicinity.

HB: But what does this have to do with monetary policy?

CN: We have a clear problem with the tranfer of monetary policy on the funding costs of banks. For the markets, the interest rate that individual banks have to pay depends on their State's credit costs and not on the rates fixed by the Central Bank. This means that the transfer of our monetary policy is not working - for a Central Bank that is unacceptable. We have therefore tried to counteract this.

HB: What have you done about it?

CN: First, we have tried to turn market opinion around through the securities purchasing programme. We have also increased dramatically the amounts that the Eurosystem makes available to the banks. But we cannot rely indefinitely on a system where the central bank supports the banking system heavily with liquidity, while on the other side of its balance receiving massive amounts of liquidity. In the long run it will not be able to play this intermediary role.

HB: What is the solution?

CN: We need to fix the problem at its root. The connection between banks and States must be severed. The way to do this is a true unification of the banking system. What we need is a unified banking supervision and deposit insurance fund and a collective fund for carrying this out.

HB: In short, you mean that the eurozone needs a banking union to prevent bond purchases by the European Central Bank, the ECB?

CN: Yes, you could say that. The monetary policy must be the same in all States, otherwise there will be no price stability. The best structural response to the current turmoil is a banking union.

HB: And you would like to see the ECB take over the responsibility for supervising the banking union?

CN: The institution is credible, it could do so easily and quickly.

HB: What do you mean by quickly?

CN: Let us say we have a concept for a full range of banking supervision in the euro area. If this were agreed upon today, it could start tomorrow.

HB: But the ECB doesn't have the people to carry this out.

CN: We do not need extra people. We don't want to centralise everything at the ECB. How does the Eurosystem work? It works locally.

HB: Can you explain that in more detail?

CN: The ECB would be the centre where the measures would be decided. It would oversee what the national central bank or the national supervisor does, make decisions, give instructions, call attention to problems if it noticed any - as with the Spanish cajas. Only the ongoing supervision would fall to the national central banks and supervisors.

HB: Decentralised - is that really a good idea? Look at the Spanish cajas. The Bank of Spain has long been praised for its supervision, but in the end there was only chaos.

CN: I'm not sure if the problems of the Spanish cajas were worse than those of the German state banks. But we were certainly very disappointed about what happened in about 30 per cent of the Spanish banking sector. The Bank of Spain had been warning for years that the cajas needed to be restructured, but they did not have enough influence to push it through.

HB: The ECB would not run the risk of regulatory and monetary policy mix?

CN: To avoid any confusion of responsibilities, as well as the Governing Council there should be a separate committee of supervisors.

Full article (German only)

© Handelsblatt