15 February 2014

ECB/Cœuré: The best safeguard against banking crises is tough supervision

The 128 largest European banks will undergo an asset quality review (AQR) and stress test this year. Are you going to support a strict, conservative approach

Absolutely. We will discuss all the parameters with the 18 supervisors – the so-called "national competent authorities" of the 18 euro area countries – within the ECB’s new Supervisory Board, which met for the first time on 30 January. This will be the place where all the assumptions, parameters and choices will be discussed. This will be the first important contribution made by the Single Supervisory Mechanism (SSM) to the euro area.

Once these tests have been completed, will European taxpayers be on the safe side? Will they have any guarantee that such a banking crisis will never happen again?

The best safeguard to make sure that the banking crisis doesn’t happen again is tough supervision, which will be ensured through the Single Supervisory Mechanism that will start operating in November. This is the best protection. The ECB, as the single supervisor in the Single Supervisory Mechanism, will have to be tough. Together with the new banking rules, this will be the best way of preventing future crises. I very much believe that taxpayers are now much better protected than they were before the crisis, in particular thanks to the new bail-in rules that make sure that investors in banks will be the first to cover any losses. If any capital shortfall is identified by the ECB stress test and asset quality review, it will have to be covered first by the private sector.

So is the euro safe now after some very turbulent years when there was even speculation it might break up? Is the euro on the safe side now, out of the worst trouble?

The euro is no longer being challenged as a project. This is an important achievement. European policy-makers have confirmed their commitment to the single currency project and to the integrity of the euro area and this has restored trust in the euro in international capital markets. This is why many international investors are now coming to the euro area – it’s a sign of trust in the reform process here. That’s good news. What remains very challenging is growth, which is too low, and it should be Europe’s priority to support it not only in countries with adjustment programmes but also in all other euro area countries. This cannot be achieved through additional public spending but through additional investment. All countries have to restore a climate of confidence that will be conducive to investment, and this includes large economies such as Germany, France and Italy.

The ECB is a part of the troika, together with the IMF and the European Commission. What is actually the ECB’s role in the troika?

The ECB has had a very clear role since May 2010, when we were invited to join the troika and advise the European Commission on matters where we have specific expertise. Those are generally financial sector issues, the situation of banks and also the general macroeconomic balance. This has been our role, but otherwise all the decisions related to financial support to countries have been taken by the Eurogroup and by the countries themselves. The Eurogroup is the politically and democratically accountable authority. Key decisions can only be taken by authorities, or politicians who are accountable to their parliaments. Decisions on reforms in individual countries can only be taken by local governments under the scrutiny of national parliaments. The work of the troika has to be accountable to democratic institutions. The ECB can explain what it does in the troika, but we only act as an adviser.

Full interview

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