10 September 2012

FT: Berlin pressed on banking union plan

While backing a single supervisor, Berlin has fundamental concerns over the Commission's proposal: the wide scope of banks covered, the high degree of centralisation and the quick pace and sequence of implementation.

Wolfgang Schäuble, Germany’s finance minister, warned the commission “not to create expectation” that cannot be fulfilled.

Beyond issues of governance, the outcome of the debate may ultimately determine if and when the European Stability Mechanism, the eurozone’s €500 billion rescue fund, can pump capital into struggling banks directly – with German taxpayers on the hook. 

Mr Schäuble is determined the single supervisor is robust in practice, and not just a token regime on paper. He has said focusing on banks with systemic importance is “common sense” as no watchdog could be “realistically expected” to directly supervise all 6,000 banks with equal rigour and effectiveness.

For Berlin, a more practical suggestion is the ECB directly supervising 60 banks, while setting supervision rules for the remainder. Senior European officials suspect this complaint reflects deeper unease in Germany over ceding national supervision power, especially over the network of politically influential savings banks.

Mr Schäuble... has directly warned Mr Barnier against creating false hopes in markets that European rescue funds could be used directly for banks from January. He views the timetable as an unachievable and unrealistic. His priority is that experienced staff are hired, that the institution beds down and that the ECB’s powers of intervention are clear and proven.

Along with timing, Germany is uncomfortable with the order of implementation. Mr Schäuble last week said supervision should start “with systemically-relevant institutes, then maybe banks on the rescue programme”. This would reverse the commission plan, leaving Irish and Spanish banks towards the back of the ECB queue on supervision, and still some distance from direct recapitalisation.

Before moving to a single supervisor, Berlin also wants a slew of existing EU proposals stuck in the legislative pipeline to be passed into law, including rules on bank capital, resolution and co-ordination of deposit guarantees. 

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