02 October 2012

Interview with BaFin President Dr Elke König: Banking union - "The timetable is more than ambitious"

Dr König said she shared the Commission's view that a strong and efficient banking supervision in Europe is needed, but that involving the ECB in banking supervision raised many highly complex questions which should be answered first.

What questions are these, for example?

The question of how we deal with the conflicting goals of supervisory activities and responsibility for monetary policy. We need a strict separation here. In my view, it would be problematic if the ECB Council were to take final decisions in matters of banking supervision. Another subject of vital importance is the accountability of the ECB to democratically legitimised bodies. After all, the ECB would be given wide-ranging powers of intervention. This might not comply with central bank independence.

And then there is the following point: national supervisors would be part of the new mechanism – as would the European Banking Authority. There will still be quite a few things to sort out here: who has what functions, and who bears responsibility? Supervisory activities and responsibility for them must come together under one roof. How are the interfaces to be designed? They must be defined precisely, and there shouldn’t be too many of them. These and many other questions need to be sorted out quickly, but above all carefully, in order to devise a sound construction that enjoys the confidence of the financial markets and the man in the street.

Apart from that, as a supervisor I can only urge the adoption of the Single Rule Book, which is to be created as part of the implementation of Basel III, before the new European supervisory system starts.

Will all this be possible, given the short time available? Although it will be implemented gradually, the new European banking supervision system has a launch date of as early as the beginning of next year?

This timetable is more than ambitious. I can only confirm what the Federal Minister of Finance said: In any case quality must take precedence over speed. The future European banking supervision system can function properly only if – and when – the necessary legal and organisational conditions have been created. No mistakes must be made in this.

What is very important to me is that the changeover to the new supervisory mechanism must proceed smoothly and, above all, leave no loopholes. The new supervisory system must be fully functional operationally from the very first second. Anything else would be dangerous. BaFin is prepared to make its contribution to this.

And what comes next? Will BaFin lose work?

Most definitely not. BaFin – and the other national supervisory authorities – will still be indispensable under the new regime. But its role and its functions will change. We don’t yet know just how. Here once again there is the question of responsibility and the interfaces. In any event, we will collaborate even more closely at the European level than is already the case now.

At the same time we remain the primary contact for institutions. One thing ought to be clear: a central European authority cannot do everything better. Just think of the problems that physical distance and language and cultural differences can give rise to.

Is it realistic anyhow to expect the ECB to supervise 6,000 banks? Because that is how many there are in the eurozone alone?

No doubt in the short term that would hardly be possible, especially since the institutions involved differ quite considerably. It therefore makes sense to concentrate initially at the European level on those institutions that are receiving or apply for government financial assistance, or which are of systemic importance. Banks that are not systemically important should as a matter of principle continue to be supervised nationally, for national supervisors are better able to assess the particularities of local banks and their environment. Under this arrangement, the Single Rule Book is a “must”, however.

What do you think of subjecting only eurozone banks to ECB supervision and giving other EU members the option of signing up to the new mechanism?

Limiting banking union to eurozone banks creates a danger of arbitrage and distortions of competition. To that extent, a banking union that covers the whole of the EU would definitely be the better solution in the long term.

Is integrated financial supervision now passé?

Why should it be? The future supervisory mechanism, whatever form it takes, is not incompatible with the idea of integrated financial supervision at the national level. Integrated financial supervision has proved its worth in Germany. There is no reason to abandon it. Quite the contrary, in fact: the links between banks and insurers are important in terms of both micro- and macro-prudential supervision.

Do savings banks and cooperative banks in Germany need to worry?

No, the three-pillar structure of the German banking system is not threatened by a banking union. It is and remains a major advantage. However, the institutions of all three pillars will have to prepare themselves for the new framework, as will we, as well. BaFin has, however, always followed the principle of “same business – same risk – same rules”, which also means that different issues should not be treated identically. For that reason BaFin will continue to seek to ensure at the international level that due account is taken of the legitimate interests of all German banks.

Full interview

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