German Bankers Argue Over ECB Supervision Plans

Rift develops among bankers and government as monitoring dispute grows

The European Central Bank headquarters in Frankfurt. (Photo: AP) The European Central Bank headquarters in Frankfurt. (Photo: AP)

The European Commission (EC) has plans to give the European Central Bank (ECB) authority to supervise all eurozone banks, but the German government wants no part of it, saying that only the largest banks should be subject to ECB oversight. Bankers themselves are weighing in on the dispute, with some on the side of the government and others saying that exceptions will allow more banks to demand special treatment.

Reuters reported Monday that Finance Minister Wolfgang Schaeuble of Germany expressed his opposition to the EC plan, which was to be published in detail by the EC on Sept. 12. The proposal, advanced by EU Commissioner Michel Barnie, would transfer major authority over the region’s banks to the ECB.

National banking supervisors will still retain some responsibilities under Barnier's plan, including consumer protection. However, other responsibilities would move to the ECB in advance of a closer fiscal union. The plan must be approved by eurozone countries before it can become law.

In challenging the plan, Schaeuble criticized the timetable for the switchover, and said in the report, "The ECB has itself said it does not have the potential to supervise the European Union's 6,000 banks in the foreseeable future. I have doubts that this [banking supervision] can come so fast."

He also said that such supervisory transfer should only occur with “systemically relevant” banks, adding, "With the bigger, systemically relevant banks ... there is a chance that direct supervision by the ECB could be realized in a foreseeable period of time." However, he did not give specifics on which banks he thought should be covered by the plan. The German government is reluctant to hand over any control of its state-owned Landesbanks to the ECB.

On Tuesday, however, German bankers weighed in at a banking conference in Frankfurt. Juergen Fitschen, co-head of Deutsche Bank, said in the report that supervision by the ECB would only be effective if it had oversight of a broad range of banks and not just the largest in Europe. His views echo those of the EC.

One reason the EC has pushed for such oversight is its view that such a breakup between banks and troubled governments is necessary to move closer to a banking union in Europe. Fitchen’s views reinforced this. He said in the report that the belief that the largest banks were naturally the most important ones was an illusion, and pointed out that Bankia in Spain had not been considered systemically important but had turned out nonetheless to cause substantial damage not just for Spain but for the eurozone as a whole.

Fitschen was also critical of the arguments by smaller savings and cooperative banks in Germany, which have said they should remain nationally, rather than internationally regulated. "If we in Germany argue that we are different, we invite other countries to also argue for exemptions," he was quoted saying.

The dispute was fueled by comments by Georg Fahrenschon, president of the association of German savings banks, who argued that giving the ECB jurisdiction over so many banks would simply weigh it down with additional work.

Fahrenschon said in the report, "Sometimes I get the impression that the whole exercise is designed to unload so much routine work onto the ECB so it no longer has the time or capacity to properly scrutinize the really dangerous institutes."

He also had harsh words for the possibility that a common supervisor would help weaker banks at the expense of the strong, and was quoted saying, "The word banking union masks plans for a redistribution mechanism, whereby solid institutions prop up weaker lenders. It cannot become a life insurance policy to exacerbate the too-big-to fail problem."

Fahrenschon would have a united European banking system come into being only as a last resort, after all other options, such as national rescue mechanisms and national taxpayer funds to rescue banks, had been used up.

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