The ECB's mandate to resolve failing banks, under the bloc's proposed banking union, must be kept narrow to ensure the institution's new responsibility is credible, ECB governing council member Erkki Liikanen said.
"Like monetary policy, successful resolution relies on credibility", he said in a panel discussion at the Brussels Economic Forum. "The central resolution authority must be protected from various pressures by a clear and narrow mandate."
The central banker said governments must play their part and undertake structural reforms if the banking union is to work. "Protecting the sovereign against contagion from the weak financial sector is not the only role of a banking union", he said. "Structural reforms are linked to banking union."
He also echoed recent comments by German Chancellor Angela Merkel and Bundesbank President Jens Weidmann that a common insurance scheme is not currently appropriate for the bloc. "The time is not yet right for a European deposit insurance mechanism", he said, noting that a number of issues with the proposed banking union have to be resolved first.
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