Brussels, 03/12/2012 (Agence Europe) - On Tuesday, EU27 finance ministers will try to reach agreement in principle on the draft legislation to introduce a common eurozone bank supervision mechanism under the aegis of the European Central Bank (ECB) (see EUROPE 10742). The talks will focus on the division of labour between national supervisory bodies and the ECB for small banks; the governance of the Supervisory Committee to be set up at the ECB; and voting at the European Banking Authority (EBA).
The Cypriot Presidency is trying to strike a balance on legal formulation of the European Summit's request that the ECB have a central role in the bank supervisory system while allowing surveillance to differ according to the importance and scale of specific banks. It has been decided already that the new supervisory body will have the power to directly monitor the business of banks in receipt of state aid and the too-big-to-fail banks. Apart from for the granting and withdrawal of bank licences and the acquisition of bank holding companies, where power will be shared between European and national level, the ECB will send instructions to the national bank supervisory bodies that will directly supervise the “less important” banks. A special cooperation system will be introduced to prevent the emergence of a two-tier system.
The devil is in the detail of the draft regulation and the distinction between “less important” banks (that have not received state aid) and the other banks. Three criteria have been put forward: size; importance of the bank to the country in question and the wider EU; and the amount of business in other EU countries. Some member states want the mechanism to be focussed as far as possible at EU level (Spain, France, Italy and Portugal), and these countries, along with the European Commission, want the criteria to be laid out in detail, with figures attached. They say banks should not enter the “less important” category (that can be supervised directly by national bank supervisory bodies) if any of the following three conditions are met: the total value of the bank's assets is above €2.5/20/60 billion; the bank's total assets as a proportion of national GDP is over 20%/50%/70%; the bank is subject to consolidated supervision in at least two member states or has an important subsidiary in another member state that is covered by the eurozone bank supervision mechanism. Berlin is reported to want to avoid any reference to specific figures.
Supervisory Committee. In order to make the new mechanism as attractive as possible to countries planning to join the euro, the legislator is looking for a legal formula under the current EU treaties to enable fair treatment of countries within and outside the eurozone. Under the draft Cypriot Presidency compromise unveiled on 27 November, the Supervisory Committee at the ECB, where all countries involved in the mechanism would have a representative irrespective of whether the country is yet in the euro, would decide on draft decisions by a simple majority on a one country-one vote basis. This idea is reported to have the backing of most countries, but not Germany (backed by France), which wants a simple majority vote to apply to decisions about a single bank and a qualified majority vote to decisions covering more than one bank.
Draft Supervisory Committee decisions would be deemed adopted unless rejected by the ECB Governing Council (the ultimate decision-making body, but on which non-euro countries are not represented) within two weeks (silent procedure). If the Governing Council decides to make an objection, a non-euro country would be able to register its disagreement and then the Governing Council would have 30 days in which to respond. If the objection is maintained, the non-euro country would be able to inform the ECB that the decision will not apply to its banking industry, in which case the ECB could consider ending the close bank supervisory work with that country depending on the impact such a suspension would have on the integrity of the bank supervisory mechanism or its budgetary consequences.
Along with the appointment of the head of the Supervisory Committee by the ECOFIN Council rather than the ECB Governing Council, the Cypriot Presidency suggests setting up a steering committee to prepare the Supervisory Committee's routine work. Countries are divided over this idea because France and Germany want membership of the steering committee to reflect the weight of participatory countries.
EBA. Positions also vary widely when it comes to amending voting rights at the European Banking Authority. Most member states recognise the need for changes to the decision-making procedure for settling disputes between national supervisory bodies in order to allay the United Kingdom's fears. The City of London, Europe's biggest financial market, will not be part of the new bank supervision mechanism and refuses to be forced to apply decisions at the EBA generated by the ECB (which is represented at the EBA). The creation of a representative panel has been suggested. For decisions on the drawing up of financial standards, many countries do not want to change the current rules to give greater weight to non-euro countries that are not in the common bank supervisory mechanism. (MB/transl.fl)