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14 June 2012

Reuters: ECB in line to oversee top European banks


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Spain's EU bank bailout has catalysed growing German and French support for the European Central Bank to take over responsibility from the European Banking Authority for monitoring Europe's biggest lenders. (Includes quotes from Graham Bishop.)


The European Commission is... pushing for closer coordination among member countries on overhauling their banking systems and moving towards a banking union, including building on proposals for a unified deposit insurance scheme to protect savers worried about the security of their deposits. That could lead to the demise of the European Banking Authority, which currently has oversight but whose abilities have been called into question by failed banking stress tests, particularly when it comes to Spain.

"I would have nothing against giving the ECB a tougher, stronger role here", German Chancellor Angela Merkel said on Thursday, developing on her ideas for enhanced responsibility for the Frankfurt-based bank over the London-based EBA.

It's still unclear whether a single supervisor would oversee only the biggest and most important lenders or all lenders, but experts said the ECB was the only organisation that could provide money at the critical moment to troubled banks. "You could say the prudential element of banks needs to be overseen by central banks as they are the lender of last resort", said Graham Bishop, a former investment banker and now adviser on regulation to the EU.

The ECB has already begun flexing its supervisory muscles, such as wanting direct say over clearing houses that handle large amounts of euro-denominated assets, and its decision to bypass the market and build its own settlement system. It also chairs the European Systemic Risk Board, a new body tasked with spotting asset bubbles and keep an eye on banks, though without direct powers of intervention.

Germany and others feel the ECB could cut through political hurdles put up by national regulators, which some say hobbled the EBA's stress test of banks. Britain, the EU's biggest financial centre, has said it won't join a banking union but backs a single eurozone supervisor. It's concern, however, is that a single supervisor shouldn't be able to oversee non-euro denominated banking - that would be left up to national regulators in non-euro states. "There is a Lisbon treaty provision that would allow the ECB to take this role", said a British diplomat.

ECB Vice President Vîtor Constancio has confirmed this treaty provision. "It would not need anything else, just a vote (by governments)", he said this week.

Financial experts say there could be a move afoot to replicate on a eurozone level the "twin peaks" supervisory approach countries like Britain are switching to. This refers to the central bank looking at the prudential or risk-taking and capital side of banks, while a separate authority handles day-to-day supervision of conduct and compliance with rules. The ECB could become one peak, the EBA the other. "There is a twin peaks issue here. The idea that the ECB will take all supervision in-house is difficult to foresee. You still need supervisors on the ground", Bishop said.

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© Reuters


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