Friday, August 31 12:06:42
The European Commission intends to propose the creation of an agency to wind down problem lenders, the EU's top regulatory official said today, outlining plans to grant the European Central Bank sweeping powers to monitor all euro zone banks. Michel Barnier, European Commissioner in charge of financial regulation addressed one of the most contentious points in dealing with the financial crisis - how to close down laggard banks. This issue is central to his blueprint for a so-called banking union. Such decisions are usually left to national governments who shoulder the cost. The creation of a central agency would change that. "I intend to propose further steps later on building on the common supervision," Mr Barnier said. "It is clear to me that we need to create a European resolution authority separate from the supervisor, as part of my commitment to make sure that banks themselves and not taxpayers pay for failing banks."
The blueprint for a banking union, which is due to be finalised by the EU's executive and announced in mid-September, is intended to forge a unified front among euro zone countries in tackling a five-year banking crisis. Some member states would prefer the ECB handling only the systemic banks. The plan also envisages handing powers of supervision to the ECB. This would unlock the possibility of direct aid to banks from the euro zone's permanent rescue scheme, the European Stability Mechanism (ESM), although it is not clear if and when countries such as Spain would benefit. "It is crucial that we raise responsibility for banking supervision in the Euro area to the ECB," Barnier said. "And it is essential that the ECB gets supervisory powers for all matters related to financial stability for all banks in the euro area." Barnier's blueprint would rob national supervisors of much of their authority, leaving them with routine tasks, such as consumer protection. Euro zone countries must approve the proposal before it becomes law. Some central bankers are worried that giving the ECB too much responsibility for supervising banks might prove unmanageable and backfire later, hurting its image if it fails to spot problems and take action. Separating the resolution authority, responsible for winding up troubled banks, from the supervisor, the ECB, could address this. Some central bankers would like to see any winding down of banks carried out under the umbrella of the ESM. "Resolution powers will remain with national authorities until the creation of a single European body for that purpose," said one EU official. "The ECB will have the powers to detect risks to viability." Countries may be reluctant to surrender this authority, as they will deal directly with the fallout of any bank closure, including having to pay for at least some of its costs. (Reporting By John O'Donnell of Reuters)