BNP Paribas | Dec 16, 2012 04:52AM ET
On the morning of Thursday 13 December, the Finance Ministers of the twenty-seven EU members agreed on a single supervisory mechanism (SSM) promised since the summer as part of banking union. The compromise deal has produced a complex structure, under which the European Central Bank (ECB) will be responsible for direct supervision of the biggest eurozone banks, with other banks supervised by national authorities.
The ECB’s supervisory bailiwick will cover all banks with assets of more than €30bn, those whose total assets are more than 20% of GDP in their country of registration and/or the three biggest banks in each country covered by the SSM. Commission figures suggest that some 200 of the eurozone’s 6,200 banks will be covered, including the Landesbanken (regional banks). Other establishments, most notably the Sparkassen (savings banks), will remain under national supervision. However, as an exception, they may be taken under ECB supervision at any time that the latter believes it to be necessary.
An architecture will now be developed in order to define the responsibilities of the European Banking Authority (EBA) in terms of drawing up Level 2 rules (texts implementing directives) for the whole European Union, and those of the ECB, which cover just the seventeen members of the euro. To satisfy non-member countries, the UK chief amongst them, who feared a dilution of their decision-making power within the EBA, a simple double majority voting system is likely to be adopted.
Each significant decision will have to be approved by a majority of banking union members and a majority of the non-members, allowing the latter to continue to exert an influence on financial regulation within the European Union. In the event that a country opposed an EBA decision, an ad hoc committee would be formed to give a ruling.
The third task was to find a way of separating the two functions of the ECB: monetary policy in the eurozone; and supervision of banks in the eurozone including those from countries outside the euro zone, which will receive equal treatment. With this in mind, the Commission intends to make a specific and targeted change to Article 127, Paragraph 6 of the Lisbon Treaty on the Functioning of the European Union (see 30 November EU Press Release).
The single supervisory council, to be housed in the ECB, will consist of the 17 national supervisors, 4 members of the ECB, a Chairman and a Vice-Chairman. A smaller management committee (a system of rotation will prevent the largest countries from having permanent seats) will take decisions that will be ratified by the Governing Council of the ECB, in accordance with the current provisions of European treaties. However, the noneuro member states do not have voting rights within the Governing Council. In response, they will be granted equal rights in the ECB’s decision-making processes in this area.
The future powers of the ECB
In conclusion, the Brussels agreement is an important step towards banking union, the three other components of which will be a uniform regulation, a deposit insurance fund and a resolution mechanism. It is also an additional step towards integration of the eurozone. The next stage is adoption by the European Parliament of the SSM text in early 2013.
The SSM will not come into force before 1 March 2014, giving the ECB time to make the technical preparations, but probably also giving time for German public opinion to be won round in the run up to next year’s general elections. In the meantime, the ECB could be called upon to take on supervisory responsibility for a struggling bank, a necessary precursor to recapitalisation by the ESM.
By Caroline NEWHOUSE , Laurent QUIGNON
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