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ECB gets power to oversee banks
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Europe took a significant step forward in its goal to create a single banking framework for the eurozone yesterday after EU lawmakers granted new powers to the European Central Bank to oversee the zone’s banks.
The plan approved by an overwhelming majority of the European Parliament will allow the ECB in Frankfurt to oversee around 6,000 banks in the 17 eurozone countries.
While yesterday’s vote completes the last legislative step toward ECB supervision, many more challenges remain before a banking union — which also hopes to form a single eurozone authority to wind up bad banks — is finalized.
“Today marks a real step forward in setting up a banking union,” said ECB President Mario Draghi, adding that the central bank would push ahead rapidly with hiring the staff and building the institutional capacity to supervise the banks.
Banking union, conceived as a three-stage process involving a single bank supervisor, a single resolution authority and a single deposit-guarantee scheme, is the most ambitious project launched since the region’s debt crisis and is designed to provide a stronger underpinning to the single currency project.
It marks a new phase of deeper integration among the eurozone countries, but also comes with complex issues of sovereignty, with Germany, the eurozone’s most powerful member state, concerned about an over-centralization of powers.
“The single supervisory mechanism is a linchpin of a deeper economic and monetary union,” European Commission President Jose Manuel Barroso said after the vote. “Now our attention must turn urgently to the single resolution mechanism.”
After more than three years of financial market turmoil following the bailouts of Greece, Ireland, Portugal and Cyprus, establishing a more unified banking system in the eurozone is seen as critical to defending against future crises.
The ECB is due to begin its supervisory responsibilities in a year’s time, giving it a clear deadline to establish the right checks and oversight mechanisms to monitor the banks.
The parliament’s vote opens the way for the ECB to conduct a review of banks’ loan books, a so-called asset quality review. The review will take a detailed look at whether banks have set aside enough cash to deal with debts unlikely to be repaid.
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