Brussels, 22/09/2014 (Agence Europe) - On Monday 22 September, the Europea Central Bank (ECB) published a decision implementing the separation between its monetary policy and its future banking supervision functions, which it will take up from November in the framework of the “supervision” plank of banking union.
Announcing the publication of this decision at a monetary dialogue with the committee on economic and monetary affairs of the European Parliament, its president, Mario Draghi, stressed that this separation would also be brought about by physically separating the teams in charge of monetary policy, who will move to the new premises of the ECB in Frankfurt-Ostend, and those in charge of banking supervision, who will remain in the heartland of Germany's financial centre.
With effect from 4 November, the ECB will take on the role of supervisor of 119 banks of systemic importance in the eurozone, once it has published the results of its assessment of the solidity of the European banking sector, which it carried out in association with the European Banking Authority (EBA) (see EUROPE 11148). Within it, a single supervision committee will be responsible for carrying out the banking supervision responsibilities. Its decisions must be approved or rejected by the Governing Council, the body of the ECB responsible for the monetary policy and solely competent for adopting decisions on behalf of the Frankfurt-based monetary institute.
Draghi referred to the launch, last week, of the “TLTRO” operation for the injection of large quantities of cheap credit, in a call responded to by more than 250 financial entities, mostly from southern Europe, at a level of €82.6 billion (see EUROPE 11158). He has asked to wait until the December operation before carrying out a combined assessment of the operation.
ABS. Draghi, who is the former Governor of the Banca d'Italia, went on to stress that the impact of the operation should be assessed in the light of other ECB initiatives to increase inflation, such as the revitalisation of a programme for the large-scale buy-back of asset-backed securities (ABS), which will be clarified next month. “There is a certain amount of prejudice against ABS”, due to the part played by these securities in the financial crisis of 2008, he said. He argues that a distinction should be drawn between “transparent, simple and real” ABS and opaque ones which are hard to evaluate. “Our ABS are simple as you can see what's in them. We only buy priority tranches”, Draghi went on, observing that during the financial crisis, the ABS default rate in Europe was “0.12%” compared to “22%” in the United States. He reiterated the fact that the ECB would only buy back top-quality ABS securities (“senior” tranches), thanks notably to a “register” it has developed itself, and that it would not touch any securities of a lesser quality (“mezzanine” tranche) if these are not backed by State guarantees (see EUROPE 11155). He went on to state that this programme would not necessarily feed into a further real estate bubble, as banks which lighten their balance sheets by transferring real estate loan-based ABS securities to the ECB will not necessarily buy back identical loans.
Several MEPs took the opposing view to current monetary policy, stating that the main problem with Europe's economy was largely a lack of demand (our translation throughout). (MB)