Banking union leak points to sweeping powers for ECB

Blueprints for a European banking union to be published on Wednesday (12 September) will trigger fevered debate over the powers of the European Central Bank (ECB), if a draft leaked late last week remains unchanged.

The draft proposal gives the ECB sweeping powers to carry out spot checks and withdraw banking licences, previously the preserve of national supervisors.

The ECB would assume its new duties on 1 July 2013, the paper says, taking sole authority at the beginning of 2014.

The proposals – which still face months of negotiation between governments and the European Parliament – give the ECB the power “to authorise credit institutions and to withdraw authorisation of credit institutions”.

ECB would get power over all eurozone banks

On two key issues the draft indicates that the debate will be fierce.

As expected, the draft gives the ECB the right “to be able to exercise supervisory tasks in relation to all banks” within the eurozone, a move resisted by Berlin.

German Finance Minister Wolfgang Schäuble last week lambasted the idea of giving the ECB powers to monitor all eurozone banks, saying it should instead focus only on systemically important institutions.

"The ECB has itself said it does not have the potential to supervise the European Union's 6,000 banks in the foreseeable future," Schäuble told German radio, expressing scepticism about the timeframe envisaged in the Commission proposals.

The majority of EU banks are small and more than 90% of all assets are believed to be held by some 200 institutions.

Berlin is keen to retain an exception from supervision for its state-owned and politically connected Landesbanks.

Non-eurozone authorities could be trumped

Meanwhile, the potential reach of the ECB’s supervisory control into non-euro states is also covered by the draft, which says that such states would be pushed to enter into formal “close co-operation” agreements with the ECB.

Such agreements could allow the ECB to use the same spot-check powers within non-eurozone states as in eurozone countries.

These include the right to require the submission of documents, examine and take records, quiz staff members and carry out unannounced on-site inspections.

That will provoke resistance from some non-eurozone, notably the UK.

“There are ten non-eurozone countries for whom the ECB does not have a role to play in the management or supervision of the prudential safety [within the banking sector],” Conservative UK MEP Kay Swinburne – a member of Parliament’s economic and monetary affairs committee – said in New York on Friday (7 September).

“The UK would not want the ECB to regulate its banking sector. It seems the proposals will be done under an article that requires unanimity, and I know that three and possibly four member states are vehemently opposed,” Swinburne said.

Red letter day for Europe

The common bank supervisor proposal is due to be unveiled on Wednesday in the European Parliament in Strasbourg by Commission President José Manuel Barroso and financial services Commissioner Michel Barnier.

On the same day the German constitutional court in Karlsruhe is set to deliver its judgment on whether the European Stability Mechanism and fiscal compact conform with the German constitution.

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