November 19, 2012 11:24 am
Bank union proposals put curbs on ECB
The European Central Bank faces checks on its powers as a single bank supervisor under the latest EU bid to break the deadlocked banking union talks by granting nervous member states more safeguards against Frankfurt.
A compromise text circulated on Friday night, obtained by the Financial Times, proposes additional rights for nations inside and outside the new banking union, aimed at reassuring the likes of Poland, Germany and Britain.
But significantly the single supervisor still holds unrivalled legal authority over all 6,000 eurozone banks – a concentration of power that is likely to rile Berlin, which jealously guards its dominion over smaller German lenders.
The papers are produced by Cyprus, which holds the rotating EU presidency, and mark an attempt to kick-start the talks, which have stalled in spite of EU leaders promising to reach a deal next month.
Many of the amendments floated are highly controversial and it is uncertain if they would win sufficient support, given member states must agree unanimously on the final supervision package. The options for discussion include:
● Two proposed ways to end the “one-member one-vote” principle on the ECB supervision board, so member states with bigger banking sectors or populations wield more influence.
● A potential route for non-eurozone banking union members to ignore ECB decisions, should the supervision board’s proposals be overruled by the ECB’s eurozone-only governing council.
● A discussion paper on ways to give Britain and other banking union outsiders more voting clout at the European Banking Authority, so that the ECB does not dominate voting on technical rules.
● The removal of the ECB’s responsibility to co-ordinate the policy positions of banking union members, giving banking union members the freedom to vote against the ECB at the EBA.
● An option giving a banking union member the right to unilaterally tighten its bank rules to tackle a lending bubble, without prior ECB permission.
Any discussions on changing voting weights on the supervision board are likely to be fraught. The proposals follow Germany’s demand that its influence reflect the bigger size of its banking sector and the bigger fiscal risk it carries during a crisis.
The idea goes against founding principles of the single currency and will worry smaller eurozone countries and European officials who do not want the single supervisor hamstrung by national agendas.
Even so, it is unclear the concession would be enough for Berlin to accept the broad remit for the ECB, which gives it the right to intervene in the supervision of Germany’s politically powerful savings banks. Few German ideas to narrow the role of the ECB – circulated last week – are included in the compromise.
Britain will be relieved that, for the first time, its demands for reforms on EBA voting on technical standards are to be formally discussed.
The Cypriot “non-paper” includes two options that effectively stop EBA passing proposals for technical standards without a minimum number of non-banking union votes. The first option requires at least three non-banking union votes to adopt a decision, while the second requires a simple majority of those outside the banking union.
While these address key UK demands, it is only the early stages of the diplomatic battle to win the safeguards. France is likely to lead opposition to the concessions, arguing they would cripple decision making and give London undue influence.
There are other significant concessions to non-eurozone countries, which have vehemently objected to having second-class status in ECB decision making should they join the banking union.
Denmark and Poland have led calls for a right to reject decisions if the view of the supervisory board is overruled by the ECB’s top committee, which by law is exclusively made up of the single currency club.
While a straightforward “opt-out” is legally impossible, the compromise makes explicit that non-eurozone countries can refuse to implement a decision and potentially remain within the banking union, if the ECB decides against a suspension or expulsion.
These terms may provide the reassurance some non-euro countries need to envisage joining the banking union. Sweden, however, has publicly argued the case for a change to EU treaties to address the problems decisively – a process that could add years to the banking union implementation timetable.
A compromise text circulated on Friday night, obtained by the Financial Times, proposes additional rights for nations inside and outside the new banking union, aimed at reassuring the likes of Poland, Germany and Britain.
But significantly the single supervisor still holds unrivalled legal authority over all 6,000 eurozone banks – a concentration of power that is likely to rile Berlin, which jealously guards its dominion over smaller German lenders.
The papers are produced by Cyprus, which holds the rotating EU presidency, and mark an attempt to kick-start the talks, which have stalled in spite of EU leaders promising to reach a deal next month.
Many of the amendments floated are highly controversial and it is uncertain if they would win sufficient support, given member states must agree unanimously on the final supervision package. The options for discussion include:
● Two proposed ways to end the “one-member one-vote” principle on the ECB supervision board, so member states with bigger banking sectors or populations wield more influence.
● A potential route for non-eurozone banking union members to ignore ECB decisions, should the supervision board’s proposals be overruled by the ECB’s eurozone-only governing council.
● A discussion paper on ways to give Britain and other banking union outsiders more voting clout at the European Banking Authority, so that the ECB does not dominate voting on technical rules.
● The removal of the ECB’s responsibility to co-ordinate the policy positions of banking union members, giving banking union members the freedom to vote against the ECB at the EBA.
● An option giving a banking union member the right to unilaterally tighten its bank rules to tackle a lending bubble, without prior ECB permission.
Any discussions on changing voting weights on the supervision board are likely to be fraught. The proposals follow Germany’s demand that its influence reflect the bigger size of its banking sector and the bigger fiscal risk it carries during a crisis.
The idea goes against founding principles of the single currency and will worry smaller eurozone countries and European officials who do not want the single supervisor hamstrung by national agendas.
Even so, it is unclear the concession would be enough for Berlin to accept the broad remit for the ECB, which gives it the right to intervene in the supervision of Germany’s politically powerful savings banks. Few German ideas to narrow the role of the ECB – circulated last week – are included in the compromise.
Britain will be relieved that, for the first time, its demands for reforms on EBA voting on technical standards are to be formally discussed.
The Cypriot “non-paper” includes two options that effectively stop EBA passing proposals for technical standards without a minimum number of non-banking union votes. The first option requires at least three non-banking union votes to adopt a decision, while the second requires a simple majority of those outside the banking union.
While these address key UK demands, it is only the early stages of the diplomatic battle to win the safeguards. France is likely to lead opposition to the concessions, arguing they would cripple decision making and give London undue influence.
There are other significant concessions to non-eurozone countries, which have vehemently objected to having second-class status in ECB decision making should they join the banking union.
Denmark and Poland have led calls for a right to reject decisions if the view of the supervisory board is overruled by the ECB’s top committee, which by law is exclusively made up of the single currency club.
While a straightforward “opt-out” is legally impossible, the compromise makes explicit that non-eurozone countries can refuse to implement a decision and potentially remain within the banking union, if the ECB decides against a suspension or expulsion.
These terms may provide the reassurance some non-euro countries need to envisage joining the banking union. Sweden, however, has publicly argued the case for a change to EU treaties to address the problems decisively – a process that could add years to the banking union implementation timetable.
Copyright The Financial Times Limited 2012.
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