European Commission specifies proposed banking supervision powers for ECB in euro zone
The European Commission (EC) has outlined its proposals for a single supervisory mechanism for banks in the euro zone, giving the European Central Bank new powers within a banking union, while EC President Jose Barroso spoke on September 12 2012 of a vision of the EU evolving into a “federation of nation states”.
Delivering his State of the Union address to the European Parliament in Strasbourg, Barroso said that such a move was necessary to combat Europe’s economic crisis.
Barroso said he was not calling for a “superstate”, but rather “a democratic federation of nation states that can tackle our common problems, through the sharing of sovereignty”, the BBC reported.
“Creating this federation… will ultimately require a new treaty,” Barroso was quoted as saying.
In a September 12 statement, the EC said that its proposals for banks in the euro zone are “an important step in strengthening the Economic and Monetary Union (EMU)”.
In the new single mechanism, ultimate responsibility for specific supervisory tasks related to the financial stability of all Euro area banks will lie with the ECB.
National supervisors will continue to play an important role in day-to-day supervision and in preparing and implementing ECB decisions, the EC said.
The EC is also proposing that the European Banking Authority (EBA) develop a Single Supervisory Handbook to preserve the integrity of the single market and ensure coherence in banking supervision for all 27 EU countries.
The EC called on the European Council and European Parliament to adopt the regulations proposed on September 12 by the end of 2012, together with the other three components of an integrated “banking union” – the single rulebook in the form of capital requirements, harmonised deposit protection schemes, and a single European recovery and resolution framework.
According to Barroso, the EC proposals for a single European supervisory mechanism are “ a major step to a banking union”.
“This new system, with the ECB at the core and involving national supervisors, will restore confidence in the supervision of all banks in the euro area,” he said.
“The European Parliament will have a crucial role to play in ensuring democratic oversight. We should make it a top priority to get the European supervisor in place by the start of next year. This will also pave the way for any decisions to use European backstops to recapitalise banks,” Barroso said.
“We want to break the vicious link between sovereigns and their banks. In the future, bankers’ losses should no longer become the people’s debt, putting into doubt the financial stability of whole countries,” he said.
Internal Market Commissioner Michel Barnier said: “Banking supervision needs to become more effective in all European countries to make sure that single market rules are applied in a consistent manner. It will be the role of the ECB to make sure that banks in the euro area stick to sound financial practices. Our ultimate aim is to stop using taxpayers’ money to bail out banks”. He continued: “We have proposed a mechanism to separate supervision from monetary policy within the ECB, and made sure that the ECB will be accountable to the European Parliament for supervisory decisions”.
The package proposed by the EC includes:
* A regulation conferring strong powers on the ECB for the supervision of all banks in the euro area, with a mechanism for non-euro countries to join on a voluntary basis.
* A regulation aligning the existing regulation on the EBA to the new set-up for banking supervision in order to make sure that EBA decision-making remains balanced and that EBA continues to preserve the integrity of the single market
* A communication outlining the Commission’s overall vision for the banking union, covering the single rulebook and the single supervisory mechanism, as well as the next steps involving a single bank resolution mechanism.
Specific supervisory tasks will be shifted to the European level in the euro area, notably those that are key to preserving financial stability and detecting viability risks of banks.
The ECB will become responsible for tasks such as authorizing credit institutions; compliance with capital, leverage and liquidity requirements; and conducting supervision of financial conglomerates.
The ECB will be able to carry out early intervention measures when a bank breaches or risks breaching regulatory capital requirements by requiring banks to take remedial action.
The ECB will co-operate with the EBA within the framework of the European System of financial supervision. The role of the EBA will be similar to today: it will continue developing the single rulebook applicable to all 27 member states and make sure that supervisory practices are consistent across the whole Union.
For cross-border banks active both within and outside member states participating in the SSM, existing home/host supervisor coordination procedures will continue to exist as they do today. To the extent that the ECB has taken over supervisory tasks, it will carry out the functions of the home and host authority for all participating member states, the EC said.
The EC is proposing to have the SSM in place by January 1 2013.
To allow for a smooth transition to the new mechanism, a phasing-in period is envisaged, the EC said.
As a first step, as of January 1 2013, the ECB will be able to decide to assume full supervisory responsibility over any credit institution, particularly those which have received or requested public funding. As of July 1 2013, all banks of major systemic importance will be put under the supervision of the ECB. The phasing-in period should be completed by January 1 2014 when the SSM will cover all banks, the EC said.
(Photo: Miroslav Sárička/sxc.hu)