German support for an EU banking union has increased after last weeks comments by European Commissioner
Michel Barnier clarified that national regulators will
continue to have a role.
Its an encouraging sign for the European
Commissions (EC) troubled proposal, as its most ardent
opposition has come from Germany. Non-eurozone member states,
however, are not as convinced.
Speaking in Berlin on Thursday, the EU internal market chief confirmed that the
banking unions single supervision mechanism would be
supported by the network of EU national supervisors.
I think [his comments] helped ease concerns, said
Peter Scherer, a Frankfurt-based partner with Clifford Chance.
His statement made clear that the existence of a European
supervisory authority will make things easier and clearer, but
it wont abolish the national supervisors.
Barnier also said it is clear that the European Central Bank
(ECB) is not in a position to centrally supervise all 6,000
banks, which is why the network of national supervisors will
The single supervisory system will define the modalities of
decentralisation, but it is likely that the ECB will, at a
minimum, supervise financial institutions deemed systemically
important and those benefitting from public funding.
Until last Thursday, the only formal sources of information on
the banking union plan were the September 12 proposaland Barniersaccompanying speech. As these provided relatively
abstract details on the plan, Scherer thought some form of
decentralisation was possible.
But he said Barniers statements on Thursday were a
relief, and that some other market participants thought
national supervisory authorities could effectively lose their
Eight days lapsed between the proposals release and
Barnier quelling these concerns.
However an EC spokesperson told IFLR that
while these points were not stated at the September 12 press
conference, the Thursday comments contained nothing
new, and they were simply an opportunity to clarify those
Following his latest comments, Barnier reportedly sees no German resistance to
the supervisory scheme. But the same cannot be said for other
While the Thursday clarification was helpful, it is just the
start of the conversation.
Morrison & Foerster partner Peter Green in London said it
was likely that there will continue to be some lack of clarity
over the respective ambits of the ECB and national
Particularly in a crisis situation; national authorities
would be keen to keep control over the resolution of banks in
their jurisdiction, he said. It is inevitable there
will remain potential for tensions between authorities and the
ECB in these circumstances.
For many peripheral member states, Barniers promise to
delineate the ECBs central supervision and national
regulators conduct supervision has provided little
One Sofia-based partner said the ECB was obviously not in a
position to supervise 6,000 banks. It will heavily rely
on the national regulators, but the ECB will more or less be
the executive of its decisions, the partner said.
It seems the national authorities wont have the
authority to make decisions, rather they will implement the
decisions of ECB.
Bulgarias central bank governor has spoken out
against the banking union proposal. Relinquishing economic
oversight and sovereignty is his prime concern; particularly
when the average capital ration of the countrys banks is
around 17%, and the national regulator is a part of the central
But these are not just the concerns of the Bulgarian
central bank but of many other small countries as well,
said the Sofia-based partner. Its expected to be
particularly problematic in times of crisis and when the
national authority disagrees with the ECB.
Whats also generated pushback is the fact governments are
being asked to approve the plan before knowing the full
In addition to the single supervisor, the banking union entails
an EU-wide resolution scheme (the legislation for which is
underway) and a single deposit insurance system. Neither of
these will be finalised before countries decision
This makes it difficult to make an affirmative decision, the
Sofia partner said.
Overambitious timing, again
Along with decentralisation, the other immediate concern is the
timeframe for implementation. This came to a head on Saturday,
whenGerman Chancellor Angela Merkel and French President
Hollande clashed over the timeline.
It is proposed that the ECB begins supervising banks under the
European stability mechanism in January 2013; systemically
important financial institutions in July 2013; and all other
banks by January 2014.
Green believed the timing proposed was highly ambitious.
It would be very surprising to see anything firmly
developed before the end of the year, he said.
Even the January 2014 deadline seems ambitious, he
added. The ECB obviously has to get personnel and systems
in place by then that happening in just over a year is
difficult to see.
The EC spokersperson noted that it is usual practice for the
ECB or EBA to bring in expertise from the national authorities,
and that the ECB is expected to be able to recruit sufficient
competent staff, especially because of the phasing-in
Green noted that there is an impetus to get this done more
quickly than has been seen in the past because of the pressure
on the Eurozone economy and possibility of future bailouts. But
its not the first time an EU regulatory body has been set
up at a questionable pace.
Scherer said when looking at the EBA's (European Banking
Authority) early stress-testing, many in the markets thought
that they went too fast.
The staggered timeline is to establish the single regulator,
but the next two stages establishment of a single
resolution authority and deposit insurance scheme are
tipped to be even more problematic.
For instance, Germanys finance minister has already called for EU-wide stress tests, long-before
taxpayers money can be used to rescue a non-German ailing
An important distinction between this and most other EU
regulatory plans is that the markets biggest players are
in favour of the changes. For them, a single regulator applying
a unified set of rules is a clear benefit.
My feeling is that internationally active banks are
overwhelmingly in support of such a development, and think it
is going in the right direction, Scherer added.
The ECB and Bulgarias central bank did not return
requests for comment.
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