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03 April 2015

Financial Times: German bank files suit to avoid ECB monitors

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A regional German bank has filed a suit to avoid being supervised by the ECB, becoming the first lender to take issue publicly with the central bank’s expanded powers.

In November, the ECB replaced national authorities as the entity responsible for directly supervising 123 of the largest banks across the eurozone, as part of an effort to improve supervision in the wake of the financial crisis.

Landeskreditbank Baden-Württemberg, a development bank in southern Germany, said that while it agreed with the aims behind the ECB’s new role, it did not believe it should come under the central bank’s supervision, and had filed a lawsuit with the European Court of Justice to try to reverse this.

The ECB has a number of criteria for deciding whether a bank should fall under its purview. These include having assets of more than €30bn, playing an important role in a particular EU state, or engaging in significant cross-border activities.

L-Bank, which had assets worth €70.68bn in 2013, the last year for which figures are available, said that this “mechanical approach” was not appropriate in its case, arguing that it had a “legally enshrined remit to conduct low-risk development business”, and benefited from a “direct guarantee from the state of Baden-Württemberg”.

“Supervision under the terms of the SSM [Single Supervisory Mechanism] is associated with significant bureaucracy and costs. These costs impact on the funding available for providing, for example, low-interest loans for housing development, support for new business start-ups, and finance for [small businesses],” the bank added.

The move by L-Bank echoes broader concerns among smaller lenders about the costs of ECB supervision. The ECB is required to fund its supervisory activities by levying fees on the banks in the countries that participate in its supervisory framework.

Although L-Bank is so far the only institution to go to the ECJ to seek exemption from the ECB’s supervisory regime, other banks have also taken issue with their inclusion among its direct supervision.

According to a report published by the ECB this week, three banks have asked the central bank’s internal review board — the Administrative Board of Review — to check whether they should be classified among the 123.

Full article on Financial Times (subscription required)

© Financial Times

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