09 October 2012

ECON Committee: Bank supervision and bond buying top the agenda with Draghi

Mr Draghi was attending a double hearing with the committee, one in his capacity as Chair of the European Systemic Risk Board (ESRB) and the second in that as head of the ECB.

ECB bond buying - a democratic flaw

MEPs from across the political spectrum questioned the democratic accountability of the ECB's latest bond buying plan, dubbed the Outright Monetary Transactions (OMT) programme. By obliging a country to undertake economic reforms in return for bond market assistance, the ECB was adopting a political stance, argued some. "Conditionality is necessary but it needs to be imposed by someone you can kick out of office", said Udo Bullman, a leading German Socialist. This feeling was echoed by Mario Mauro (EPP, IT), who stressed that the ECB's requirement greatly impaired democratic legitimacy.

Other MEPs also pressed Mr Draghi for more details on how the OMT programme would function and how the ECB planned to pressure governments to undertake economic reforms. Mr Draghi agreed that democratic legitimacy was crucial and said that countries must face the reality that since their economies had integrated significantly, a similar political integration was now needed. "The ECB has been arguing that sharing of sovereignty at supranational level is necessary", he said.

Banking union

Many MEPs pressed Mr Draghi for his views on the effects of the new banking supervision arrangements on non-eurozone countries. They also asked how the bank supervision mechanism could operate before common crisis resolution and deposit guarantee legislation was in place, and how the EU supervisor would interact with national ones. They also asked about the timetable for introducing the legislation.

Mr Draghi insisted that the single supervisory system should be as open to non-eurozone countries as possible, conceding however that legal and technical difficulties to do with their role in the ECB's structure would need to be ironed out.  

In both hearings Mr Draghi also stressed that an EU bank crisis resolution system was essential because "banks can fail regardless of the quality of supervision". He also said that such a regime would give authorities the best tool to deal with moral hazard, since it would still be possible to allow banks to fail. But at same time, the primary focus would first be on banking supervision: "we have to accept reality", he told MEPs.

Collaboration between national and EU supervisors would continue largely unchanged, Mr Draghi said. As for the timetable, he indicated that although it was important that the legislation was in place as indicated by the Commission, the ECB would give itself "around one year to implement it fully".

Lending drought

In his observations on the work of the ESRB, Mr Draghi noted that one of the three most pressing problems was that banks were lending less. Other risks highlighted were that governments could cut back on their reform programmes and that a downturn could hit the EU economy.

Some MEPs also reiterated that banks were not lending to the real economy, and others pointed out that small firms most in need of credit in hard-hit countries were forced to borrow at significantly higher rates than those in countries less affected by the crisis.

Press release

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