September 17, 2012
The European Commission published its already widely leaked plans for an EU Banking Union. Key elements are: (i) the transfer of extensive prudential supervisory powers over euro-area banks, based on Art. 127.6 TFEU, to the ECB, starting in January 2013 for selected banks (those receiving financial assistance), widened from July 2013 to systemically important banks and from 2014 to all banks; (ii) changes to EBA’s governance structure which would effectively give non-EMU countries veto power, (iii) a communication on the intention to progress on designing pan-EU restructuring and deposit guarantee schemes.
As expected, the proposals fall short of the comprehensive, consistent framework needed to put the EU financial market on a firmer foundation. Even disregarding the fundamental problems linked with transferring supervisory powers to a central bank, the proposals fell short of what is needed: (i) There are no meaningful proposals for crisis management or corresponding financing mechanisms at the EU level. (ii) Contrary to the proposal, small banks will most probably be exempted (at Germany’s insistence), creating regulatory arbitrage. (iii) The timetable is far too ambitious and won’t be kept. (iv) Giving the non-EMU countries veto power will prevent the EBA from issuing a common rule-book and uniform supervisory guidelines, further undermining the single market. (v) Finally, while the ECB’s powers look extensive on paper (and are unlikely to survive the legislative process), in practice they will be weakened by the ECB’s dependence on national authorities.
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