24 October 2013

ECB/Mersch: Interview in Het Financieele Dagblad

Will there be a new round of three-year LTROs?

There is a difference between banks that otherwise have trouble attracting money and banks asking for ECB-financing. At the same time we see improved access for banks to markets in southern Europe, their own funding and that of their sovereigns becoming less problematic.

So a new round of three-year LTROs might not be necessary?

Possibly. All options are open and we have a very extensive toolbox. We still have to monitor the situation very closely. But as a central bank we are not with our back against the wall. The message to the markets is: we will do everything that is needed to execute our monetary policy objective with conventional and unconventional measures.

Banking Union is the magic bullet to end fragmentation?

It is an important element, because it entails not only supervision but also an orderly resolution of insolvent banks. I cannot tell you exactly when it will be over. Unfortunately, we don’t have a stop button to push.

Are you optimistic about competitiveness?

Yes, we see progress in all programme countries. It’s visible in trade balances and real price adjustments. It vindicates economic theory. Ireland will soon be able to raise money on its own. Spain will probably not need more support for its banks. We will see in six months whether Portugal needs a follow-up programme. Although the decisions of the Constitutional Court there remain an unknown.

The ECB will take up supervision from next year and will review the books beforehand. Do you already know exactly which bank will fall under your remit?

No bank will be completely absent from our radar. The most important ones with assets of at least €30 billion will be supervised directly. We will also look at the size in relation to GDP, but we will cover at least three banks from each euro area country. The final list will only be made up when the new Supervisory Board takes up its duties next year. In the sample of banks subject to the comprehensive assessment we built in some safety margin of 10 per cent, because balance sheet totals can fluctuate. So, not all the banks that are assessed will necessarily end up being directly supervised by us. Other banks will remain under national supervision. Not with the amount of national discretion we see at present, but according to harmonised standards and rules. A Dutch bank will be scrutinised in the same way as a Greek bank will be scrutinised.

What do you mean by national discretion?

Supervision has its fashions too. Like skirt length going up or down, supervisory practices go back and forth between quality and quantity. In the mix sometimes one thing dominates, sometimes the other thing.

Is that a difference between Northern and Southern Europe?

No. In all countries we have seen changes towards more quality or quantity. On top of that there is an enormous amount of options and exceptions in the European guidelines. Every article has formulations that open up possibilities of a deviation from the rules. This has led to divergence and absence of a level playing field. Even in the present capital requirements directive (in CRD IV) more than a hundred deviations are possible. The future Supervisory Board is obliged to publish within six months a complete set of harmonised rules and procedures. A public consultation on this framework regulation is also foreseen.

Full interview

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