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The European Central Bank supports the European Commission’s decision on creation of the “banking union”. As a result, it will be given a right to watch over other banks of the Eurozone.
A bit earlier today Jose Manuel Barroso presented a plan for the ECB’s supervision over other creditors of the Eurozone. This measure, while taking Europe closer to creation of the “banking union”, is necessary to ensure tax and budgetary integration, which according to Barroso will form a basis for future of the European currency.
The proposed reforms are aimed to destroy interdependence between banks and national governments in order to prevent situations when largely indebted countries face even more difficulties as a result of the banking crisis.
Barroso reminded that although banks had become transnational, supervision and control over them was still exercised at the national level. The current crisis has demonstrated that perfectly. This implies the necessity to switch to a single mechanism of supervision in Europe. Of course, in order for this mechanism to work, countries will have to sacrifice part of their sovereignty where it deals with banking supervision.
The EC’s proposal implies that the European Central Bank will be put in charge of the scattered system of national banking regulation, having a right to manage, impose sanctions and even to close banks in the Eurozone. The ECB will also be able to control liquidity in the banking sector and demand banks to increase their capital buffer, if necessary.
Creation of the “banking union” will take three steps: giving the ECB a right to watch over all banks in the Eurozone (as well as those banks from the EU wishing to join this system), creation of the fund to liquidate problematic banks, and sophisticated system of deposit insurance throughout the Eurozone.
Using a single action plan in respect to problematic banks will make possible abandoning the previously used unsystematic approach which used to increase costs of servicing economically weak counties and led to investors’ disappointment.
Giving the ECB all the new powers of authority will also allow it to provide direct financial support to banks with the ESM (European Security Mechanism) in place.
It is expected that the European Central Bank will commence its new supervisory activity starting from 1 January 2013, with all corresponding functions to be put in place before 2014. That’s slightly earlier than it was expected before.
Meanwhile, Germany still stands against granting such broad powers to the ECB. Berlin thinks that it should regulate only the biggest – systemically important – banks. This is partially explained by its reluctance to submit control over special regional banks in Germany – the ones referred to as “Landesbanken”.
Original source: RBC
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