Brussels, 12/12/2012 (Agence Europe) - EU27 finance ministers will try to reach unanimous agreement on draft legislation to introduce a eurozone bank supervision mechanism under the aegis of the ECB on Wednesday 12 December after an initial two-hour discussion. In order of descending importance, the main stumbling blocks are the same as at the previous ECOFIN Council, namely fair treatment for non-euro countries that join the scheme, governance at the steering committee, deciding what constitutes a “smaller bank,” how the system will come into place and changing voting rights at the European Banking Authority (EBA).
The ministers are perfectly aware of what's at stake. Irish finance minister Michael Noonan said it was about hiving off bank problems from public debt issues and restoring confidence in the strength of banks. The introduction by May 2014 of a eurozone supervision mechanism will pave the way for direct bailout of struggling eurozone banks, subject to certain conditions, by the European Stability Mechanism (ESM), although German finance minister Wolfgang Schäuble warned that people should not raise “false hopes.”
Treatment of non-euro countries. Several finance ministers of countries not in the euro but which might join the bank supervision system raised their concerns about fair treatment. Anders Borg of Sweden said fair treatment was not possible under existing EU treaties and hence he said Sweden will not be joining the mechanism. In the event of a bank going bust, he said the voting rules are important because it is then a matter of sharing the financial burden of the bailout, he explained. Poland has made a special request, backed by several non-euro countries, and backs Sweden's line. More conciliatory, Danish economy minister Margrethe Vestager hoped it would be possible to find practical solutions to compensate for the fact that under existing treaties, it is not possible to ensure equal treatment of non-euro countries.
The latest Cypriot Presidency compromise solution does not make any changes to the way decisions are made at the ECB on bank supervision issues (see EUROPE 10748). A non-euro country that is part of the supervision mechanism would have the right to withdraw if the ECB Governing Council objects to a draft decision made by the Supervisory Committee (on which all participating would have a member).
Backing the Swedish demands for fair treatment, Wolfgang Schäuble said a Chinese Wall had to be built to hive off monetary policy (on which the ECB has full independence) from bank supervision, on which the ECB will be accountable.
Small countries expressed dislike of the ideas about the membership of the steering committee and the qualified majority decision-making procedure for the committee preparing the work of the Supervisory Committee. Schäuble said decisions on this might be postponed until the spring of next year.
Large and small banks. Bank supervision will vary in line with a bank's importance. While the buck stops with the ECB at the end of the day and it will directly monitor the too-big-to-fails and banks in receipt of state aid and eurozone bailout fund aid, national supervisory bodies will do the daily monitoring of “smaller” banks, as demanded by Germany right from the start.
Under the latest Cypriot Presidency compromise on the drawing board, a bank would be deemed “smaller” if at least one of the following three criteria is met: - total assets of less than €30 billion; - total assets/national GDP ratio of les than 20%; - subsidiaries or branches in at least three countries in the supervision mechanism. Independently of these criteria, the ECB would have to directly supervise at least two banks in each participating country.
Apart from Malta, the vast majority of countries seem to go along with these figures. The Commission and ECB are not happy about putting figures in the legislation, but are open to suggestion. Backed by Italy, the ECB has called for the scrapping of the third criterion, but says it can go along with the idea of €30 billion as long as the ECB is given special powers to intervene generally and more specifically in individuals banks. Germany is not happy about this, and the United Kingdom refuses point-blank to allow the ECB to intervene in any European bank in the United Kingdom unless the Bank of England has the same powers to intervene in British banks with branches in the rest of Europe. Austria's finance minister Marie Fekter warned against reducing the €30 billion cap and the 20% ratio, but Denmark wants a €40 billion cap.
Timing. The Cypriot finance minister, Vassos Shiarly, suggested that as soon as the legislation comes into force, the ECB should be able to do its supervisory work if needed. But ECB vice-president Vítor Constâncio says this is not do-able. The mechanism would become operational in April 2014 at the latest. In the meantime, the ECB would publish quarterly reports on how introduction of the mechanism is going. (MB/transl.fl)