Brussels, 13/12/2012 (Agence Europe) - In the early hours of Thursday 13 December, the ECOFIN Council reached agreement in principle on the introduction by March 2014 of a eurozone bank supervision system under the aegis of the ECB for the 6,000 or so banks in the eurozone (see EUROPE 10750). The supervision will operate in varying ways and be done by the ECB itself for the biggest 150 to 200 banks and those in receipt of public aid from eurozone bailout funds, with remaining banks continuing under the control of national supervisory bodies. To ensure proper integrity of the system, the ECB will have the right to scrutinise any bank covered by the mechanism. The agreement removes a thorn from the side of the European Summit, which has been examining (from Thursday afternoon onwards) strengthening of economic and monetary union (see related article). Next week, talks will start with the European Parliament, which has been ready for the negotiations since the end of November (see EUROPE 10741).
“I dare say it's a Christmas present for us but also for the whole of Europe. The overall aim is to restore confidence in the banking industry. It will enable the vicious circle between bank and sovereign to be broken,” said Cypriot finance minister Vassos Shiarly after more than 12 hours of talks. Internal Market Commissioner Michel Barnier welcomed the first big step towards Banking Union, the second one being unveiling an EU bank bailout authority next year when draft legislation on national bank bailout and deposit guarantee schemes have been adopted.
Different types of supervision. The ministers decided to agree on the thresholds for determining smaller and larger banks, as demanded by Germany. Along with banks in receipt of public aid, a bank shall be deemed “big” and therefore to be supervised directly by the ECB if it meets one of the following criteria: - total assets of above €30 billion; - making up more than 20% of the GDP of its host country unless it has total assets of less than €5 billon. French economy minister Pierre Moscovici said that at least the three biggest banks in each participating country would be controlled directly by the ECB.
Barnier said nearly 200 banks would be directly monitored by the ECB with the number fluctuating as banks met the relevant criteria or no longer met them, as things change over time. The ECB will have the power to decide to directly monitor a bank with a subsidiary in another member state if it has significant cross-border business, along with struggling banks. Moscovici said the ECB would have power to examine banks and categories of banks and have the right to investigate any particular bank at any time. German finance minister Wolfgang Schäuble said the ECB would be able to issue general guidelines for a bank, but not specific details for individual banks it does not directly supervise.
How national and EU supervision will interact will be fine-tuned as the bank supervision mechanism takes shape. Spanish economy minister Luis De Guidos said that this would mean a lot of work for the ECB and would require good coordination with national supervisory bodies. Barnier said it would take the ECB a year to decide on procedures and recruit staff.
Direct bailouts. Expected in March 2014 (possibly later), the bank supervision mechanism will pave the way for direct bailout of struggling banks by the European Stability Mechanism (ESM). Barnier said that in the meantime, the ESM (using its own decision-making systems) would be able to decide to arrange the direct bailout of a bank, in which case the ECB would be asked to directly supervise the bank in question. Schäuble said this was not very likely to happen, pointing out that Germany has to have a vote from its parliament to authorise such a move.
In order to hive off monetary policy from bank supervision, a Supervisory Committee will be set up, which will include four representatives of the ECB and national supervisory bodies. The committee chair will be appointed by the Council of Ministers. In the vast majority of cases, the Supervisory Committee would decide using one country, one vote.
Equal treatment. One subject that took a long time at the talks was how to ensure fair treatment of non-euro countries which might join the bank supervision mechanism. Non-euro countries would have the right to withdraw if the ECB Governing Council objected to a draft Supervisory Committee decision. The ministers decided to that an advisory committee would be set up, in which the EU27 will participate, in order to solve differences in opinion following an objection by the Governing Council to a draft Supervisory Committee decision. The United Kingdom, the Czech Republic and Sweden, which called for a change to the EU treaty, have said that they will not join the new bank mechanism.
A steering committee, without any decision-making powers, would be set up to prepare the supervisory Committee decisions, the membership of the former being a guarantee of fair treatment among euro and non-euro countries.
EBA. The ECOFIN Council decided on new voting rights for the European Banking Authority (EBA) to reflect the emergence of the bank supervision system. The City of London, Europe's biggest financial centre, has decided not to join the supervision mechanism for fear of being forced to apply rules devised by the eurozone.
A distinction needs to be made between decisions taken in the event of disagreement between two or more bank supervisory bodies or infringements of EU financial rules on the one hand and the drawing up of technical standards on the other. In the first case, a special panel will be set up of two euro and two non-euro countries, which would prepare a decision. For a decision to be adopted by the EBA, the existence of simple majorities of euro and non-euro countries will be required. In the second case, the EBA will issue technical standards once there is a qualified majority in favour among euro and non-euro countries. (MB/transl.fl)