Bank Regulator Agreement for Eurozone

December 13th, 2012
in econ_news, syndication

Econintersect:  The Eurozone finance ministers have agreed on a plan to form a breaking-news-130px7common bank regulator.  The supervisor of all the banking activities in the 17 country Eurozone will be headquartered in Frankfort and will be operational in a little over a year from now.  The governments have agreed to cede their individual control over their national banks.  Considerable rights were retained for influence over the banking regulator by the ten non-euro members of the EU.  A plurality (six) non-euro countries must approve any  actions taken by the new regulator.

Follow up:

Although the new supervisor will be implemented in early 2014, no date was set for the control of the supervisor to be taken over by the European Central Bank (ECB).  However the ECB will have the right to intervene in any specific bank on an individual case by case basis should it deem such action necessary.

The toughest final hurdles involved resolution of differences between France and Germany and over the question of how voting rights of member countries would be distributed between the large and small countries of the Eurozone.

There is some ambiguity in the agreement.  According to the Financial Times it is not clear if the ECB will assume all control of Eurozone banking or if the banking system in Germany would remain significantly under German regulation, creating a "two-tier regime."   The uncertainty derives from the size of banks to be regulated (larger than €30 billion [$39 billion]).  This covers nearly all the banks in France but not a large number of German institutions.

For smaller countries banks under €30 billion in size would be regulated if they individually represent more than 20% of a nation's output.

While the statement by the finance ministers indicated that no treaty modifications would be needed for implementation, there appears to be some uncertainty in that regard.  From the BBC:

EU leaders believe that the first stage of a banking union - a Single Supervisory Mechanism (SSM) - can be put into place without having to change EU treaties.

But there had been some legal doubts about the subsequent stages - a joint deposit guarantee scheme and a joint resolution mechanism for winding up broken banks.

The UK's House of Lords EU Committee said on Wednesday it was "not convinced that an effective banking union can be created within the existing constraints of the European treaties".

London is the EU's main financial centre, and handles by far the biggest share of euro foreign exchange transactions. So the UK government is anxious to safeguard the City's powerful role and prevent its business leaching to a more integrated eurozone.

The plan will now require approval from the EU parliament and the German Bundestag.  This process may take several months.

John Lounsbury


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