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September 12, 2012 at 05:40 AM
A banking union throughout Europe came a little closer to reality with the unveiling of a plan by European Commission (EC) President Jose Manuel Barroso that would not only allow the European Central Bank (ECB) to supervise all eurozone banks, but also give it jurisdiction over a broader, and at first voluntary, EU banking base.
Reuters reported Wednesday that Barroso laid out the plan during his annual state of the union address. While the measure must be approved by EU member states, it implements a break in the close ties between economically challenged countries and the banks that struggle within them. The catch is that countries must give up a portion of their sovereignty to allow an outside body to step in and assert control—a condition that has been a sticking point with both Germany and the U.K.
“The crisis has shown that while banks became transnational, rules and oversight remained national,” Barroso was quoted saying in his address to the European Parliament. “We need to move to common supervisory decisions, namely within the euro area.” He added, “The single supervisory mechanism proposed today will create a reinforced architecture, with a core role for the European Central Bank … It will be a supervision for all euro area banks.”
The plan has three major parts. First, the authority to oversee all eurozone banks, as well as others in the EU that consent to be supervised, would be conferred on the ECB. The central bank would thus preside over national regulators, and would also have the authority to police banks, impose penalties on them and shut them down if necessary.
Next would come the establishment of a fund to close troubled banks. A third part of the plan is a fully developed method to safeguard people’s deposits throughout the eurozone.
“The challenge is gigantic,” said Nicolas Veron in the report. Veron, an expert in EU financial policy with the Brussels-based economics think tank Bruegel, added, “It’s not just banking union. Banking reform is part of a broader agenda of integration that has been made more pressing by the crisis.”
