22 August 2012

Bundesbank/Dombret: ECB should not be sole euro bank regulator

A joint liability must not be introduced through the back door. Instead, two principles must be observed:

First, the principle of unity of accountability and control. As long as the control remains with the nation States, the liability must be there. This is important in order not to encourage high-risk business models that threaten financial stability. 

Second, the correct sequence of steps must be followed. There must be further steps towards a European control, which also requires democratic legitimacy.

One of the issues still to be resolved in relation to a European banking supervision is which countries should be included: all European Union countries, or just the euro area? Given the networking between financial institutions throughout the whole of the EU and in the context of the internal market, I am with those who say that all EU countries should be integrated into this European supervision. It would strengthen the common market, would be in line with the single rule book, and would contribute to a level playing field.

For similar reasons, in principle all banks should be supervised by this European authority. Banks that appear less important to financial stability could be delegated to the national authorities, although if necessary such banks could always be included again, based on individual decisions. From my perspective, the European supervisor would definitely benefit from the national supervisory authorities having an operational role. This is probably even essential.

From the perspective of central banks, the way in which they are to be included is of great importance. They should of course be involved, given their extensive macro-economic and macro-prudential expertise. The question, however, is how this will happen. I believe it does not necessarily mean that a central bank should take final responsibility for supervision. What is important is that the regulator and the central bank work together efficiently and above all continue to exchange information.

In my view, this would be consistent with involving the central bank in operational oversight. In this way, any conflicts with the independent monetary policy could be avoided, and the credibility of central banks would be protected.

Against this background, the final responsibility for supervision could also be taken on by a different authority, rather than by the ECB. Supervisory powers imply extensive intervention rights, which in turn require direct democratic legitimacy. If the central bank were to have sovereign final responsibility, its independence would be restricted. And please do not overlook the fact that monetary policy decisions can affect the robustness of the banks. This may very well lead to conflicting objectives.

All of these are, I believe, are good reasons not to transfer the final responsibility to the ECB but to another authority which would be led by a council in which the home countries of the banks would be adequately represented. The size of the individual banking sector should be reflected here. It goes without saying that the ECB would retain a very important and comprehensive advisory role.

Regardless of the solution arrived at in the end, in my opinion monetary policy should be separated as far as possible from the regulator.

If this European banking supervision is designed with the right principles and carefully prepared and implemented, we have a great opportunity to make an important contribution towards financial stability.

Full speech (German only)

Speech in English

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