German objections to the ECB supervising all 6,000 banks in the euro area have also focused on the practical implementation problems associated with the ECB taking over the supervision of so many banks all at once. I believe these practical implementation difficulties are overstated and that true reasons for German objections are more likely related to the unwillingness to have highly politicised small German banks come under European supervision.
An analogy with the common monetary policy is relevant. One could argue that taking over running monetary policy operations supplying liquidity to 6,000 different banks and involving the work of tens of thousands of central bank staff would lead to severe implementation problems and require a huge centralised staff. In practice, most of the day-to-day work of the Eurosystem is still done in the national central banks and the ECB itself operates as a form of centralised secretariat rather than a huge bureaucracy.
In the same way, even if the ECB becomes the official supervisor of all euro area banks, the majority of day-to-day supervisory tasks would remain with local supervisors, with the head office staff at the ECB designing common policies and taking the key decisions in relation to specific problem banks.
Working in tandem with an ESM that is able to use funds to recapitalise weak banks, this kind of common supervisor could be up and running sometime in 2013. The question is not whether the organisational issues can be sorted out but whether the political will exists to allow it to happen.
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