European Central Bank
ECB president promises banking union by year end
By Sarah Collins | Tuesday 10 July 2012
European Central Bank President Mario Draghi has said that some form of banking union will be sketched out by the end of the year, but has added that it will focus on supervision rather than joint deposit insurance and bank resolution funds. “We have to deliver, at the end of this year, a reasonable concept of a banking union, which will not be perfect for sure but it is what will be achievable now,” Draghi told members of the European Parliament’s Committee on Economic Affairs (ECON), on 9 June. “Let’s focus on the thing that can be done immediately, which is supervision.”
Euro and EU member states are divided over if and how to set up common deposit guarantee schemes, which compensate savers in the event of a default. A directive on deposit guarantee schemes is stuck in second reading in Parliament and Council, with MEPs arguing against deposit guarantee schemes being raided for resolution purposes. Meanwhile, divisions have also emerged over the set-up of separate resolution funds, which would be used to pay off shareholders and creditors and keep payments ticking over in failed banks. The funds are a key part of a separate proposal on bank recovery and resolution tabled by Internal Market Commissioner Michel Barnier in June, which suggests national funds should be able to lend to each other where there is a shortfall. Draghi said that moves towards a banking union should concentrate on supervision first, resolution second and deposit insurance only third. The European Commission has said it will publish a proposal on a banking supervisor for the eurozone in September, a proposal that is likely to mandate the ECB to directly supervise the bloc’s largest banks. “We should never forget that we will rely on national supervisors,” Draghi told MEPs. “Small banks can be well supervised by national supervisors, who have much better knowledge about a small regional bank than someone who is sitting outside the country.”
The creation of the banking supervisor is a major spoke in the wheel of the Spanish bank bailout. The Spanish government will this month tap the EFSF rescue fund for an initial €30 billion loan, an amount that will be added to the country’s debt. However, the government is desperate to transfer the bailout to the bloc’s future rescue fund, the ESM - which can only recapitalise banks directly once a central supervisor is in place. The ESM was due to come into force on 9 July but ratification delays in several eurozone countries - particularly Germany and Italy, which are two of the largest shareholders in the fund’s capital base - has thrown the schedule into disarray. Draghi said that using the EFSF “would certainly worsen the links between banks and governments but it would be temporary - it would be perceived as a temporary blip in the public debt of that country because it would be known since now that as soon as the ESM were to enter into force it would replace public debt with ESM money”.