Setting up a powerful eurozone banking supervisor, a significant move toward closer economic union within the 17-nation currency bloc, was a German condition for its agreement to allow the bloc's bailout fund to recapitalise banks without first lending the money to their host government.
The leaders hinted strongly that the European Central Bank would take on the new role, a shift they said could take place without the time-consuming and risky process of changing EU treaties.
Those within the bank who back the proposal, such as Vice President Vítor Constâncio, say the ECB already has the resources and infrastructure in place to perform this function. 14 of the 17 national central banks that make up the euro already have supervisory responsibilities, giving them deep knowledge of their domestic banking systems.
One key question is which banks the euro supervisor should regulate. Many experts think the supervisor should police only "systemic" banks—those large enough to have an impact on the eurozone's financial system as a whole. "It would be ridiculous for the eurozone to take over responsibility for the supervision and conduct of business of thousands of banks", said Graham Bishop, an adviser on European financial regulation.
Most likely, the move from national supervisors to the ECB will be gradual, starting out with large lenders, said a senior government official. "In the first phase the ECB will concentrate on systemic and cross-border banks", the official said, but added that the exact definition of "systemic" was still up in the air. "In some cases, it will even have to be made on an ad hoc basis", he said, citing the example of Bankia and other Spanish savings banks whose recent troubles forced Madrid to request up to €100 billion ($126 billion) of eurozone aid.
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