Brussels, 10/12/2012 (Agence Europe) - Following a fruitless ECOFIN Council last week, the Cypriot Presidency has prepared a new draft compromise on legislation to introduce a eurozone bank supervision system under the aegis of the ECB that would cover the area's 6,000 or so banks in varying manners depending on their size (see EUROPE 10744). Ahead of the special ECOFIN Council meeting this Wednesday, national Council of Minister experts worked on the matter last Thursday and Friday and the EU27 sherpas met on Monday evening.
Although the ECB will be ultimately responsible for bank supervision, it will be carried out in varying ways. Qualitative and quantitative criteria must now be decided upon to decide what constitutes a “small bank” to be supervised on a daily basis in the member states and the too-big-to-fails that will be monitored directly by the ECB, in addition to banks in receipt of public aid. The following criteria will be used: the size of the bank; its importance for the economy of a country in the bank supervisory system and the EU27 as a whole; and the scale of its cross-border business.
According to the updated Cypriot Presidency draft compromise (see document on our Twitter account Twitter@AgencEurope), “a bank shall not be considered less significant if any one of the following conditions are met: (i) the total value of its assets exceeds [€30 billion]; or (ii) the ratio of its total assets over the GDP of the participating member state of establishment exceeds 20%; or (iii) it has established in at least 3 participating member states banking subsidiaries or branches.” Independently of these criteria, the ECB should supervise at least two financial institutions in each country participating in the mechanism, explains the draft Cypriot Presidency compromise.
The €30 billion figure is middle way between countries like Germany on the one hand, which say the ECB must not (and cannot) supervise too many banks, and countries like France, Spain and Portugal, which warn against a two-speed mechanism. Aware of the limits of its resources, the ECB itself called for the setting of a high limit (a total of €50 billion to €60 billion in total assets) at the last ECOFIN Council meeting. It says €30 billion would be acceptable because it is along the lines of the United States' $50 billion threshold.
Treatment of non-euro countries. The new draft compromise makes no changes to the decision-making process at the ECB for its bank supervisory decisions. Draft decisions of the Supervisory Committee (set up to separate off monetary policy from bank supervision, a body which non-euro countries would participate in) would be formally enshrined by the ECB Governing Council, which under the EU treaties had responsibility for decisions at the ECB. Non-euro countries involved in the mechanism would have the right to withdraw if the Governing Council objects to a draft decision prepared by the Supervisory Committee. An eight-member steering committee (elected from members of the Supervisory Committee) would be set up in order to prepare the work of the supervisory council. Germany and France want the committee membership to reflect the relative size of countries' banking sectors. In order to keep the smaller countries happy (like Luxembourg), the Cypriot Presidency suggests that the steering committee membership be balanced through a rotation system for its members.
Finding a solution to hive off bank supervision from monetary policy at the ECB is the “heart of the problem,” said German finance minister Wolfgang Schäuble in an interview with German magazine Bild am Sonntag on Sunday 9 December. Another German newspaper, Der Spiegel, said the German government is prepared to agree to the headquarters of the Supervisory Committee to be in Paris rather than Frankfurt.
Introducing a eurozone bank supervision system will pave the pay for the direct bailout of struggling banks by the European Stability Mechanism (ESM), the eurozone's bailout fund. On 13 and 14 December, the European Summit is expected to demand the establishment by March 2013 of a regulatory framework to allow direct bailouts of banks (see EUROPE 10747). Once the regulation introducing the eurozone bank supervision system comes into force, the ECB will have the power, where necessary, to directly monitor any bank requesting aid or in receipt of aid from the European Financial Stability Fund (EFSF) or the ESM. In the summer of 2013, the ECB would have the power to directly supervise banks that have already received indirect aid from either eurozone bailout fund (the ESM or the EFSF).
Once the legislation is in place, the ECB would have to decide exactly how to organise its work. It will become completely operational in January 2014, or six months later if it is not possible by January. From 2013 onwards, it would produce a progress report every quarter on how the new system is working inside the ECB. (MB/transl.fl)