Germany: EU supervisor should focus on big banks

AP News
Posted: Aug 31, 2012 11:25 AM
Germany: EU supervisor should focus on big banks

BERLIN (AP) — Germany's finance minister wants the new European banking supervisor to limit its focus on major banks whose stability is vital to Europe's financial security, rather than spread itself too thinly and monitor all of the region's 6,000 lenders.

Wolfgang Schaeuble's comments in an article for the Financial Times Friday could lead to a conflict between Berlin and the European Union's executive Commission, which is to present proposals Sept. 12 on how to put a Europe-wide supervisory system in place.

Plans for the new banking body are being drawn up after European leaders in June called for a new system as part of efforts to tackle the debt crisis in the 17 countries that use the euro.

The EU's internal market commissioner, Michel Barnier, was quoted as telling German daily Sueddeutsche Zeitung's Friday edition that the plan is for more than 6,000 banks in eurozone countries to be supervised by the European Central Bank "in close cooperation with national supervisors."

Schaeuble, however, wrote that "it is crucial that the new system be truly effective."

"We must eschew yesterday's light-touch approach for good and endow this supervisor with real and clearly defined responsibilities, coercive powers and adequate resources," he said.

This, he noted, means it should focus its oversight on those banks that can pose a systemic risk. "We cannot expect a European watchdog to supervise directly all of the region's lenders — 6,000 in the eurozone alone — effectively."

Lawmakers in the conservative party of Schaeuble and Chancellor Angela Merkel argue that there's no reason why smaller local savings banks, for example, need ECB oversight.

Barnier, however, was quoted as saying: "We are convinced that all banks must be centrally supervised. Otherwise, serious problems can arise."

The commissioner added that the plans also call for all banks being helped by the eurozone's permanent rescue fund to be centrally supervised starting next January. Big banks would be subject to central oversight from July 2013 and the system could be extended to all banks in January 2014.

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In his article, Schaeuble didn't specify when central banking oversight might be introduced. But he said that "setting up such a system will be no simple undertaking and doing so within a reasonable timeframe will require not just hard work but also courage, for it implies a big step toward more European integration."

He said that, if the supervisory job is handed to the ECB, decision-making on banking supervision and monetary policy "should be strictly separated so as to pre-empt conflicts of interests."

That, he added, also would make it easier for EU countries that don't use the euro to take part in the supervisory system.

Weighing in on another aspect of bank regulation, Schaeuble argued that "immediate cash bonuses for top bank executives should not exceed their fixed pay."

And, he asked, "why not give a large quorum of shareholders the last say on setting these executives' long-term variable pay as soon as it exceeds a given level?"