In World Economy News 06/05/2015
The European Central Bank is considering delegating more power to its supervisory arm to avoid monetary-policy makers becoming entangled in low-level details, said people familiar with the matter.
Since assuming oversight of the euro area’s largest lenders in November, ECB officials have come to the conclusion that the legal requirement for each decision to be seen by the 25-member Governing Council isn’t sustainable, the people said, asking not to be named as the deliberations aren’t public. An ECB spokesman declined to comment.
The discussions highlight the Frankfurt-based institution’s struggle to incorporate fresh responsibilities after 16 years of focusing on price stability. They may also provide ammunition to critics of the current set-up who want the Single Supervisory Mechanism to be split off entirely.
The SSM expects to take around 6,000 decisions a year across 19 countries on topics including capital plans and approval of bank management. While many of those decisions can be taken in a ‘written procedure’ that doesn’t require a physical meeting, the Governing Council must be aware of all of them and be ready to object if needed.
One option being considered is ‘umbrella decisions’ that can cover multiple cases, two of the people said. Officials may make adjustments after a planned review of procedures due by the end of this year.
Limited Powers
The ECB was given responsibility for banking supervision by European Union leaders in 2012, as the first pillar of a Banking Union to mitigate future financial crises. Under the leadership of France’s Daniele Nouy, the SSM has aggressively pursued its mandate, scrutinizing bank balance sheets in an unprecedented review last year and pushing for higher capital levels.
Even so, the watchdog’s powers are effectively limited by the EU regulation written as the SSM was hastily constructed. That document must comply with Article 129 of the EU’s basic treaty, which states that the decision-making bodies of the ECB are the Governing Council and the Executive Board.
It’s unlikely that the ECB will seek to change the treaty or even amend the SSM regulation, two of the people said. Instead, lawyers are examining how the rules can be adjusted to fit with existing laws, they said.
SSM officials are anxious to avoid conflicts with the monetary-policy side of the ECB and have erred on the side of legal prudence with regard to the running of the institution, one of the people said. The central bank nominally has a “strict separation” between supervisory and monetary-policy operations.
Conflicts of Interest
“Time will tell whether this structure truly helps avoid conflicts of interest between monetary policy and banking supervision, or whether it might have been better to create an independent banking supervisor,” SSM and Bundesbank board member Andreas Dombret said on Monday. “A situation may arise in which the Governing Council might be tempted, out of monetary-policy concerns, to alter decisions that the Supervisory Board proposed from a supervisory perspective.”
The pressure on euro-area supervisors trying to introduce a tougher, pan-European form of financial oversight is growing. Austria’s finance ministry may overhaul the country’s Financial Market Authority after banks complained of ‘onerous’ oversight, Kronen-Zeitung reported on Tuesday. The FMA, like the Austrian central bank, holds a seat on the SSM board.
Lower Levels
Elke Koenig, former president of Germany’s Bafin supervisor and now chair of Europe’s new bank-resolution body, has said supervisors need to be left to get on with their mandates, and has backed the idea that more powers should be delegated to the lower levels of the organization — including below Nouy’s SSM board.
Some officials are irked by the minutiae of matters viewed by the board, made up of the heads of the 19 national supervisory authorities of the euro area plus 6 ECB appointees, that might otherwise be assumed by the so called Joint Supervisory Teams. The JSTs are mostly responsible for the oversight of individual banks, and include senior management as well as on-site inspectors.
As for a system where the Governing Council is obliged not to object to SSM decisions before they can come into force, it “doesn’t exactly enhance the effectiveness of the new supervisory body,” Koenig said in January.
