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September 2012

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Editorial

Is a single bank supervisor really what Europe needs?

Plans currently being drawn up by the European Commission (EC) could see the European Central Bank (ECB) designated as the financial watchdog for 6,000 Eurozone banks. According to EU Commissioner Michel Barnier, who is spearheading the proposals for a single supervisory body, banks that have already received support from the European Stability Mechanism (ESM) may come under the auspices of a common regulator from as early as 1st January 2013. The deadline for all Eurozone banks to be under the supervisor’s umbrella is equally ambitious, a mere 12 months later.

The idea of a single supervisor with direct oversight of banks and the power to ‘enforce rules and oversee risk controls’ was agreed at the end of June 2012 as part of the EC’s grand scheme to implement a ‘banking union’ among the single currency countries. At the time however, it was undecided which institution would take up the reins, with the newly created European Banking Authority (EBA) a second place contender.

While the latest proposal is not due to be formally presented by EC President, José Manuel Barroso until 12th September, Brussels is most definitely pushing the ECB forward for the role. The EC’s proposal, says Olli Rehn, EU Economic and Monetary Affairs Commissioner, “envisages an ambitious mechanism, with relatively broad coverage, which will oversee all banks in the euro area, with the ECB at the heart of the system.”

Although the rationale behind the proposal is clear – creating a banking union; restoring confidence in the banks and the euro; breaking the link between sovereigns and banks; and ‘clearing the way’ for the ESM to directly capitalise the banks – is this really what Europe needs right now? And just how will all this be achieved in such a short space of time?

Wolfgang Schaeuble, the German Finance Minister, was the first to put the brakes on the proposal, saying: “The ECB has itself said it does not have the potential to supervise the European Union’s 6,000 banks in the foreseeable future.” He would prefer to see just the largest financial institutions fall under the ECB’s supervisory remit. Schaeuble also shot down the 1st January 2013 implementation date, describing it as ‘problematic’.

Even Helmut Ettl, Executive Director of Austria’s Financial Market Authority, and a firm supporter of appointing the ECB to supervise all Eurozone banks, is sceptical about the timescale. “We consider a quick and dirty solution to be dangerous,” he warned.

A number of additional doubts and questions remain. What will the supervisory role of national authorities entail on a day-to-day basis? Where does the EBA fit into this plan? Will EU countries outside the Eurozone volunteer to come under the ECB’s supervision? And most importantly, will the ECB be able to effectively separate its monetary policy decision-making from its banking supervisory responsibilities?

But all of this remains conjecture for now. The proposal needs to be formally put forward and then approved – not just by the heads of the 17 euro countries, but by all 27 EU member states. That will require an awful lot of groundwork from both Barnier and Barroso. And 2013 is fast approaching.