Legislators on all sides now need to show willingness to compromise in order to agree on a mechanism for winding down banks that can deliver rapid and reliable decisions and mobilise credible and readily accessible funding, she added.
MEPs questioned Ms Nouy about the operational steps ahead of the start of EU bank supervision and negotiations under way on the bank resolution mechanism.
Bank supervision
The key issues raised were the organisation of the asset quality review, how the bank supervisor planned to ensure accountability, and what safeguards it would deploy to limit the risk that Banking Union would lead to a split between eurozone and non-eurozone banks. The ECB will publish the Framework Regulation by the 4th of May 2014, following a public consultation that was recently closed. It will prepare a feedback report that will be published at the same time as the Framework Regulation.
The preparation of the SSM fee framework is also well on track. The public consultation is foreseen still in the first half of 2014, with the SSM Regulation on fees to enter into force before the 4 November 2014.
Work is also progressing on the implementation of the separation principle between the monetary policy and supervisory functions, as part of a general reflection involving all the relevant business areas within the ECB. This should help in the drafting of internal rules regarding professional secrecy and information exchanges between the two functional areas.
Nouy told MEPs she was keen to encourage non-eurozone states to opt-in to the SSM. She insisted, "the best way of making sure this will happen is for the SSM to do a very good job". (see BBC-article with video of Nouy's speech)
Zombie banks
Reuters reports that her comments, including her plea for countries to form a united front in solving the problem, give an early indication of how the bloc's chief banking supervisor intends to tackle issues that show up in health checks this year. They may also influence talks between European lawmakers to finalise the second pillar of Banking Union - the launch of an agency to close bad banks and a fund to help cover the costs. This would go hand-in-hand with European Central Bank supervision of the sector. "The banks that have to disappear are ... the zombie banks", the ECB watchdog chief said, referring to banks that are so laden with bad loans that they are unable to give fresh credit. "I hope that action needed will be taken and we will not have any more zombie banks", she said.
Comprehensive assessment
In her introductory statement, Nouy said: "The preparations for the EU-wide stress test exercise are near finalisation. A consultation has been launched as regards the stress test methodology and templates. The stress test methodology and the scenarios will be finalised and published in April 2014, thereafter the stress test exercise will be launched amongst all 128 banks.
The Comprehensive Assessment will help increase confidence and resilience of the EU banking sector. In turn, this will help the recovery of credit flow in the real economy. It cannot do this alone however."
"To further underpin the credibility of the exercise, we need solid and well-defined public backstops at the national and, as a last resort, at the European level. I call on Member States to honour the strong commitments they made and to have the necessary arrangements in place at the national level, including resolution mechanisms and public backstops, enabling them to respond promptly if needed to any vulnerability identified by the Comprehensive Assessment."
Bank resolution
MEPs also asked Ms Nouy about the difficult issues that still need to be resolved between the European Parliament and Council negotiators. Ms Nouy replied that although it is important to agree a deal under the current Parliament, this deal must ensure that "prompt and efficient decisions" can be taken over a weekend at most. Of the overly complex decision-making process advocated by some EU countries she said: "When a house is on fire, the fire brigade should not have to wait until the city council has agreed on whether and how to intervene. It should be able to go out immediately when the fire has broken out. And just like an effective fire brigade needs access to water and reliable water hoses, the SRM needs ready access to a resolution fund to be able to conduct a resolution over one weekend."
She also stressed that the bank-financed resolution fund must be able to borrow, especially in its early years. Moreover the fund should become truly single at most five years after it is set up, although the bank contributions would not need to be accelerated accordingly. Responding to a question from Portugal's Elisa Ferreira, Ms Nouy said the timescale towards setting up a fund, which could be as long as 10 years, was "far too long", saying she would like the fund established within three to five years.
Commissioner Barnier
MEPs from all political groups voiced reservations in reply to Commissioner Barnier’s call to conclude negotiations on Banking Union. They argued that quality matters more than haste, and that it would be better to resolve the outstanding issues with the new Parliament than to have a bad Banking Union. Replying to Mr Barnier’s appeal to their political will and responsibility, MEPs said their main responsibility was to taxpayers and the key issue of who will pay for a Bank Resolution Fund with no credit line and no clear funding regime must be settled.
For his part, Mr Barnier agreed that EU countries needed to move closer to Parliament’s position and that decisions on winding up specific banks should not be taken through the Council. He also said that a fund needed the ability to borrow money from the day of its inception, so that taxpayers would not be brought in unduly.
Bankers’ bonuses
MEPs also quizzed Mr Barnier about draft technical standards designed to ensure that bankers’ bonus rules, which some claimed are already being circumvented, are consistently enforced across the EU. They noted that these standards had been sent to Parliament as a “take it or leave it” offer, and in any event too late to allow it to revise them thoroughly before the elections.
Parliament’s key concern was that a loophole in the wording of the rules on “material risk-takers” could allow many bank employees to escape a bonus cap. The Commissioner reiterated that the enforcement standards were in line with the bonus curbs legislation and added 15 qualitative criteria to the existing quantitative ones in order to cover all risk-takers.
According to Reuters, the rule, already the toughest curb on bonuses globally, limits bankers to no more than an employee's fixed salary, or twice that level if approved by the bank's shareholders, and will affect 2014 awards to be handed out early next year. Some MEPs accuse banks of skirting the cap by awarding monthly or quarterly "allowances" to boost a banker's fixed pay. Barnier said the allowances, which he described as a "new category of invented revenue", were being examined by the EBA. "If we note any deviations or sidestepping of the law then ... the EBA needs to assume its responsibility and react", Barnier said.
Press release
Introductory statement
ECON-briefing
Ms Nouy's answers to ECON's questions ahead of the hearing
© European Parliament
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