PRODUCT PROFILE

Latest Dublin Prices

ECB to supervise 6,000 banks?

Thursday, September 13 08:54:10

Can the ECB really effectively supervise over 6,000 financial institutions throughout Europe? This is what is planned but the supervisory capacity of the ECB is limited and the expansion required to undertake this huge task will require massive expansion. All of this in the face of Germany's near opposition. Even so, if euro zone governments manage to quickly approve the proposal, it could bolster confidence that political leaders are addressing flaws in the structure of the euro zone. "It shows the Europeans are actually able to do something together," said Nicolas Veron, a senior fellow at Bruegel, a research firm in Brussels. "That is heartening."

Handing supervisory authority to the central bank would also fulfill a condition necessary for the euro zone's rescue fund, to take a more active role in bank bailouts. The fund, the European Stability Mechanism, would be able to directly supply banks with fresh capital and take stakes in them in return, without having to go through governments that have sometimes dawdled. It is unclear when the mechanism might be able to take on expanded powers to aid banks, but it could be within months. The mechanism moved a big step forward Wednesday after Germany's highest court declined to block the country from participating.

Still, Berlin continues to oppose giving power over all of its banks to the central bank. Germany has 1,900 credit institutions, more than double that of any other euro zone country. Many of them are small savings banks, often owned by municipalities that use them to funnel credit to local enterprises - and in some cases as a vehicle for political patronage. German landesbanks, which are larger than the savings banks but also have close ties to state and local governments, have been particularly vocal in opposing centralized bank supervision.