09 October 2012

Reuters: Europe edges towards banking union

European Union ministers examined a proposal to limit planned new powers for the European Central Bank to supervise lenders, in a bid to allay the concerns of countries outside the eurozone over a new banking union.

The diplomatic drive came as the President of the ECB and Germany's markets regulator cautioned that setting up a new system of supervision would take up to the end of next year, later than many expected and a potential setback to efforts to help distressed eurozone countries and their banks. Brussels proposed earlier this month that the ECB take charge of supervising all banks in the euro currency zone in stages from January, as a first step towards creating a banking union under which chiefly euro zone countries would eventually jointly back their lenders.

Diplomats from Cyprus, the current holder of the European presidency, delivered a proposal to change the blueprint for banking supervision, a move, in the words of one EU official, to make it more "digestible" for countries outside the euro. In the document, they recommend a counterweight to the central bank's authority to withdraw a bank's licence, the ultimate threat a supervisor holds, by giving national regulators a large say in such a decision. They also suggest a way for countries outside the currency area that choose to join the banking union, subjecting lenders to ECB control, to leave it again, by allowing them to "request the ECB to terminate the close cooperation at any time".

Barnier is aiming to reach agreement on the new supervisory system by the end of this year. But Mario Draghi, the president of the ECB, cautioned that setting up a new framework of supervision would take longer. As a first step, the ECB is set to take responsibility for supervising banks which have received state aid beginning 2013. From mid-2013 the ECB will add systemically relevant institutions, before finally overseeing all eurozone banks by 2014. Germany, the eurozone's economic heavyweight, has criticised efforts to allow the ECB to supervise all eurozone lenders, claiming it will be overstretched.

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