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Schäuble Snubs Commission's ECB Bank Regulation Plans

by Ulrika Lomas,, Brussels

10 September 2012

In contrast to the European Commission, Germany’s Finance Minister Wolfgang Schäuble has insisted that it is simply ‘unrealistic’ to assume that the European Central Bank (ECB) will be able to supervise all of the banks in Europe in the foreseeable future.

Although the Commission has not as yet finalized details of its proposal, it has already made clear its goal that the ECB will supervise all banking institutions in the European Union, irrespective of their size, arguing that even modest banking groups may pose a threat to the entire system.

European Commissioner responsible for Economic and Monetary Affairs Olli Rehn recently indicated that the Commission’s approach provides for an ambitious mechanism to be introduced to supervise all of the banks in the eurozone, with the European Central Bank at the very heart of the system. Rehn explained that the ECB’s powers of intervention could even extend to other institutions located in non-eurozone countries.

Commenting on the European Commission’s proposal, German Finance Minister Schäuble alluded to the fact that the ECB has already conceded that it does not currently have “the potential” to supervise the 6,000 financial institutions in the European Union (EU) in the foreseeable future. Schäuble refuted any suggestion that a system could be put in place by the end of the year, casting doubt on the actual timeframe sought by European leaders, notably the end of June.

The German minister advocated instead that the European banking supervision system focus, in the first instance at least, should be on large, systemically important cross-border institutions, to have a chance of succeeding in the near future.

Schäuble highlighted the fact that a European banking supervision mechanism involving the ECB would have to be in place before banks could be directly recapitalized by the permanent euro rescue mechanism, the European Stability Mechanism (ESM). The minister also emphasized that if indeed the ECB does assume the role of supervising banks at European level, then a re-organization would need to take place to guarantee the ECB’s independence as regards monetary policy.

The European Commission is due to unveil details of its plans for banking supervision on September 12.

On September 6, the ECB announced that it was ready to step into the secondary market to buy short-term government bonds of eurozone countries in the latest attempt to ease the European sovereign debt crisis. This would, however, put additional pressure on those member states teetering on the brink of bankruptcy, most notably Spain and Greece, to hit strict fiscal targets, suggesting that further waves of austerity measures may be needed in these countries.

TAGS: Finance | investment | economics | European Commission | banking | Germany | currency | European Union (EU) | Europe

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