The European Central Bank would be given sweeping authority over all 6,000 eurozone banks under a plan being drawn up by the European Commission, putting Brussels on a collision course with Germany and the ECB itself, which have urged a more decentralised first step towards banking union.
Under the proposal, ultimate authority would pass to a new ECB “supervisory board” separate from the ECB’s existing governing council. Although its make-up is still being debated, the leading plan would create a 23-member board: a national representative from each eurozone country plus six independent members, including its chair and vice-chair. A separate board was deemed necessary to establish a firewall between the ECB’s existing monetary activities, which includes providing cheap loans to struggling banks, and its new supervisory role.
A new single banking supervisor would be the most significant change in eurozone financial governance since the single currency’s creation, giving the EU the kind of federal authority it has thus far lacked to decisively tackle the crisis. It is also a key demand from Berlin in return for what some believe is a more significant crisis-fighting tool: giving the eurozone’s €500 billion rescue fund the power to bail out struggling banks directly. Bank bailouts in Spain and Ireland have saddled governments with huge debts that would be wiped away if the funds came directly from the rescue system.
The German government has resisted centralising all supervisory powers with the ECB however, arguing that Frankfurt should be left to deal with just the eurozone’s 20-25 largest banks. National supervisors would then be left as independent and coordinating agencies for smaller banks.
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