Plan Said to Expand ECB Power in Banking

Under the EU proposal for banking union, ECB would be the only regulator able to grant banking licenses in the euro-zone.

The European Central Bank would have the sole power to grant banking licenses under proposals to give it supervisory powers and build a euro-area banking union, a European Union official said.

The ECB would have a monopoly on granting all bank licenses within the 17-nation euro area under the plan, due to be unveiled on Sept. 12, the official said, speaking on condition of anonymity because the plan isn’t final. Under the proposals, which are being drafted by the European Commission, the ECB would also gain discretion over which banks to supervise directly and when it will delegate day-to-day oversight responsibilities, the official said.

National regulators will retain control over when and how to close a bank under the proposals. At the same time, the central bank would be able to make recommendations and have a voice in the process.

“The ECB should be given full supervisory powers related to financial stability,” Stefaan De Rynck, a spokesman for Michel Barnier, the EU’s financial services chief, told reporters today in Brussels. National regulators should remain in charge of some other tasks, including consumer protection, he said.

Euro-area leaders in June decided to create a common bank supervisor and beef up the ECB’s oversight role to pave the way for direct bank bailouts from the currency area’s firewall fund. The currency zone’s debt crisis, now in its third year, has forced Ireland, Greece, Portugal and Cyprus to seek broad-based aid, while the Spanish government was granted as much as 100 billion euros ($126 billion) to recapitalize its beleaguered banking system.

The 10-year German bund extended losses on the news, as did Finnish and Dutch debt of the same maturity. European Financial Stability Facility 10-year bonds also fell. The euro extended gains, trading at $1.2576 at 12:34 p.m. in Brussels, up 0.6 percent on the day.

The euro area should continue to rely on national authorities to handle the stabilization and winding down of failing banks, De Rynck said. In time, the EU will make proposals to transfer some of these powers to a European-level authority that would be separate from the ECB, he said.

ECB Executive Board member Joerg Asmussen said in a speech this week that the central bank should be equipped with “all the necessary instruments to effectively exercise banking supervision” including “intervention powers” and “the right to close down unviable banks.”


Systemic Risk

German Finance Minister Wolfgang Schaeuble said the ECB will need to focus its direct oversight on banks that can pose a systemic risk to Europe. He made the comment in an op-ed published today in the Financial Times.

This sort of triage is “common sense,” he said. “We cannot expect a European watchdog to supervise directly all of the region’s lenders -- 6,000 in the euro zone alone -- effectively.”

Schaeuble also said bank supervision needs to be accountable to the European Parliament and the council of European leaders. He called for safeguards to be set up so that the ECB maintains its independence on monetary policy matters.


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