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German watchdog: No bank union til 14

Tuesday, October 09 14:20:26

Plans to establish a euro zone bank regulator by Jan. 1, 2013, may be delayed by a year, Germany's markets regulator said today, a potential setback to efforts to help distressed euro zone countries and their banks.

European leaders agreed at the end of June to set up a single supervisor to oversee 6,000 banks in Europe, but Elke Koenig, head of Germany's markets regulator BaFin, said the original deadline to start such supervision was unrealistic.

"I could imagine that we get there in January 2014. That's a guess," she told German television station ARD on Tuesday, adding this was her personal view.

Koenig argued that efforts to centralise supervision should proceed with caution, a view at odds with several euro zone policymakers, but in line with German Finance Minister Wolfgang Schaeuble, who last month objected to giving the ECB sweeping powers.

The speedy establishment of common banking supervision is necessary to pave the way for the direct recapitalisation of lenders via the European Stability Mechanism (ESM), a euro zone bailout fund which came into force on Monday.

Propping up weak banks is seen as a way to break the vicious circle linking indebted governments and their troubled lenders. Doubts over the solidity of Spain's finances, for example, are inextricably linked to its weak banking sector.

The Dutch Central Bank said on Tuesday that policymakers should quickly give the European Central Bank the tools to supervise major lenders and to enable the ESM to directly recapitalise troubled banks if shareholders or national governments proved unable.

Germany, the euro zone's economic heavyweight, has criticised efforts to allow the ECB to supervise all euro zone lenders, claiming the ECB will be overstretched. In reality, the ECB will not be in day-to-day charge of supervision, which will still lie with national and local regulators. But the ECB is expected to leave national supervisors with less wiggle room to adopt special rules designed to protect their home market.

Germany's landesbanken, for example, are currently allowed to keep using a special form of non-voting capital as a way to meet tougher rules on capital safeguards. The ECB's president Mario Draghi commented on the timetable for creating a new supervisor on Tuesday.

"The ECB is not supposed to take over supervision in three months' time and do it. There is a phase-in time. We foresee that one year will be needed to adapt all the structures," Draghi told the European parliament.

As a first step, the ECB is set to take responsibility for supervising banks which have received state aid beginning 2013. From mid-2013 the ECB will add systemically relevant institutions, before finally overseeing all euro zone banks by 2014. (C ) Reuters