Brussels, 11/09/2012 (Agence Europe) - On Wednesday 12 September 2012, the European Commission will unveil legislation to give over-riding powers in 2013 to the European Central Bank (ECB) for the supervision of banks in the eurozone, as was decided by the eurozone heads of state in June this year (see EUROPE 10645). Battle lines are being drawn up between eurozone countries and other member states not in the euro and unhappy about the idea of the ECB getting greater influence at the European Banking Authority (EBA) that draws up common bank rules in the EU, and also greater influence on subsidiaries in their country of eurozone banks. The European Parliament will be doing all it can in the talks with the EU Council of Ministers to ensure the new supervisory system is open and has democratic legitimacy.
The first legislation will be a draft regulation to give the ECB various supervisory powers with the aim of ensuring financial stability within the eurozone. A draft document seen by this newsletter grants the following powers: a) the power to grant and withdraw certification to allow banks to operate; b) monitoring respect of prudential rules on bank capital requirements, restricted exposure to certain risks, the leverage effect and transparency rules vis-à-vis regulatory bodies and the market; c) the power to introduce 'additional measures' and greater capital requirements; d) introducing compulsory capital buffers, including contracyclical buffers; e) ensuring respect of governance rules; f) carrying out stress tests to assess banks' solvency and solidity; g) the power to force banks which are found to be struggling to introduce recovery plans and inter-group aid; h) supporting the European Commission's work to ensure direct capitalisation of a bank via the European Stability Mechanism (ESM); i) fining banks if they infringe EU legislation. The ECB will have the same powers over subsidiaries of non-eurozone banks that do business in the eurozone.
The various parts of the legislation will come into force on different dates. On 1 July 2013, the ECB will have supervisory powers over the biggest banks (comprising between them at least half of the financial industry). The full list of banks in question will be published in May 2013. EU Internal Market Commissioner Michel Barnier has said that if the regulation is introduced early enough, then all banks in receipt of state aid will be entitled on 1 January 2013 to direct capitalisation from the ESM in the event that they need more cash (see EUROPE 10679). From 1 January 2014 onwards, the common bank supervisory powers will cover all the 6,000-odd banks in the eurozone. Germany is not happy about this - it wanted the ECB's powers to only cover too-big-to-fails.
In order to carry out these new tasks, the ECB will be required to totally separate its business, hiving off monetary policy from bank supervision. To this effect, the ECB will set up a four-man supervisory committee at the bank itself, appointed by the ECB's Executive Board, who will be joined by a representative from each eurozone's bank authority. The ECB Governing Council will appoint this new committee's chair and deputy-chair. The president of the EBA and the president of the European Commission will be entitled to attend the supervisory committee meetings as observers.
Relations with national bank supervisory authorities. The draft regulation states that the common supervision mechanism will be made up of the ECB and competent national authorities. Upon request, said national authorities will help the ECB in its work and monitor application of instructions given by the ECB. For example, a national supervisory authority might suggest that the ECB withdraw a certain bank's certification to ply its trade in the eurozone. The supervisory authority would provide the ECB with the information needed to carry out its work and would then help the ECB carry out inspections on the ground. Eurozone nations' bank supervisory authorities will retain exclusive powers, such as ensuring that consumers are properly protected, and that payment systems operate properly.
Close cooperation will be set up between the ECB and supervisory authorities outside the eurozone and the ECB may introduce legislation to this effect if a member state requires greater cooperation with the ECB and pledges to respect the ECB's guidelines and provide the information needed for the ECB to carry out its supervisory work. Clashes are expected with countries that disagree with such close cooperation. Countries like the United Kingdom may take a dim view of any attempt by the ECB to supervise subsidiaries of eurozone banks that are located in London or elsewhere in the UK.
Other draft legislation will amend the EBA Regulation to take account of the common eurozone bank supervisory system. Now that the ECB will be getting involved, non-eurozone countries fear they will lose influence at the European Banking Authority. Aware of this, the European Commission will be putting forward a number of guarantees. Two non-euro countries, however, may be given seats on the EBA Executive Board, according to Reuters, who say that by coordinating its views with the eurozone, the ECB would nevertheless be able to play god at the EBA.
EP determined to have a say. Seeing these two items of legislation as a single package, the European Parliament is determined to have great influence on the member states. The EP is a co-legislator for the draft regulation on the European Banking Authority (the rapporteur on the draft regulation will be a member of the Greens/EFA party), but is only consulted on the regulation to give supervisory powers to the ECB (the rapporteur on this draft regulation will be from the EPP party). On Tuesday 11 September, Jean-Paul Gauzès (EPP, France) said that there would be tough talks because of the clash of interests and the fact that national practices will have to change. He said it was crucial for the EP to introduce democratic control into the process and introduce the political will for greater European integration. He added that it was important to avoid bank supervisory 'dumping.'
The European Parliament's Economic and Monetary Affairs Committee has tabled a draft resolution to ring the alarm bell about attempts by some member states to introduce an opaque supervisory system. The resolution says that an effective system is needed to prevent problems spreading from the eurozone to other member states once banking union has been set up.
Further steps. On Wednesday 12 September, the European Commission will publish a roadmap setting out a detailed timeline for the next stages of banking union. It will call for rapid introduction of the two items of draft legislation on the table, namely legislation to boost cooperation among national savings deposit systems (see EUROPE 10555) and legislation to a European bank recovery programme (see EUROPE 10628). Once the common eurozone bank supervisory system legislation has been adopted, the Commission will suggest setting up an EU bank restructuring authority, which would intervene when the ECB detects problems at a bank, problems of such scale that require external intervention to prevent the bank from going under. (MB/CG/transl.fl)