EU bank supervisor is ‘first pillar’ of proposed banking union.
European finance ministers today (15 October) finalised plans for a single European Union banking supervisor, which will oversee the financial health of EU banks as of November 2014.
The supervisor constitutes the first pillar of the EU’s planned banking union, a project to bring the continent’s banking system under the ultimate control of a single EU regulator and bank rescue fund.
The European Central Bank will have direct oversight for all eurozone banks, in co-operation with national regulators. Non-eurozone countries will be able to opt into the system.
In addition to proposing the single supervisor mechanism in September 2013, the European Commission last month put forward draft legislation to create a single bank resolution fund with powers to rescue or wind down stricken banks. It also proposed rules setting out who would foot the bill for any bank rescue.
These rules, currently being examined by the European Parliament, would oblige a bank rescue to exhaust all private funding options, including losses to shareholders and junior lenders, before using any public funds. The European bailout fund would guarantee the system by acting as a creditor of last resort.
The overall scheme of this proposal has the backing of all eurozone governments, according to Pierre Moscovici, France’s finance minister, following a meeting of eurozone finance ministers last night (14 October).
But member states again disagreed today over exactly how and when the eurozone bailout fund could intervene to directly recapitalise a bank. Such an intervention would exempt the member state that is home to the bank from incurring financial liabilities, thus breaking the link between banks’ balance sheets and national finances.
Germany today maintained that member states should remain responsible for rescuing banks that incur large losses before the EU supervisory system comes into force.
Wolfgang Schäuble also insisted that a stricken bank’s senior bondholders contribute to any rescue attempt, as some member states sought to reduce the liability of senior bondholders under the Commission’s proposal.
Member states also differed over the “exceptional circumstances” that would allow the creditor of last resort to intervene to directly recapitalise a bank.
Some countries are arguing that the exception should be “absolutely exceptional” while others are saying it should be “more normal”, Luis de Guindos Jurado, Spain’s finance minister, told reporters.
Michel Barnier (pictured), the European commissioner for the internal market and services, insisted to reporters in Luxembourg that he was ready to work with member states to accommodate their concerns in the Commission’s proposals.