Europe lays groundwork for banking union

BRUSSELS/LONDON Fri Sep 7, 2012 4:36pm BST

The Euro currency sign is seen in front of the European Central Bank (ECB) headquarters in Frankfurt September 6, 2012. REUTERS/Alex Domanski

The Euro currency sign is seen in front of the European Central Bank (ECB) headquarters in Frankfurt September 6, 2012.

Credit: Reuters/Alex Domanski


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BRUSSELS/LONDON (Reuters) - The European Central Bank should have power to police, penalise and even close banks across the euro zone, the European Commission will say next week when it fleshes out plans for a banking union to tackle the region's debt crisis.

The move is part of wider efforts to prevent problem banks, such as Spain's Bankia, from sucking weak euro zone countries deeper into the crisis as they borrow to finance bailouts and is a step towards the economic integration needed to secure the single currency's future.

Commission President Jose Manuel Barroso will on Wednesday set out proposals for the ECB to supervise the euro zone's 6,000 banks, putting it at the head of the current fragmented system of national regulators and reducing their role.

The ECB could get power to closely monitor banks' liquidity and impose higher requirements on banks to hoard capital, according to a draft proposal, which was published on the internet by the Italian newspaper Il Sole 24 Ore on Friday.

The Commission hopes that tighter surveillance of banks by the ECB, followed by the creation of a fund to wind up troubled lenders and a common pan-European guarantee for depositors, can restore confidence in the region after five years of financial crisis.

"Banking union is one of the issues that can demonstrate that the euro zone is getting its act together," said Ken Wattret, an economist at BNP Paribas.

A banking union will require countries to surrender a degree of sovereignty over their lenders, a prospect politicians in several countries are suspicious of.

Britain has decided not to join although many international banks in London with operations in the euro zone will nonetheless be affected by the ECB's new supervisory reach.

The ECB would be able to shut a struggling bank, if euro zone states agree to the sweeping new powers.

In the draft document, officials write: "The ECB should ... have the task to authorise credit institutions and should be responsible for the withdrawal of authorisations." National authorities would also have to be involved.

Germany, the euro zone's economic heavyweight, is opposed to allowing the ECB supervise all euro zone lenders.

Berlin claims the central bank will be overstretched if it has to monitor all 6,000 euro zone banks. Commission officials argue that even small banks can spark a crisis, as happened at Britain's Northern Rock.

The draft document lays down a phasing in of this supervision over one year and says the ECB should be able to police all banks. The ECB should begin monitoring half of the euro zone banking sector from the middle of next year.

This move would allow for the direct recapitalisation of euro zone banks from the region's permanent rescue fund, the ESM, which could have immediate benefits for Spain and its troubled banking sector.

Once that step is complete, work would begin on getting approval for a pan-European resolution scheme to wind up stricken banks, and for strengthening the guarantee scheme that protects depositors.

A banking union will not be effective without these other elements but they will be difficult to implement and may need time-consuming treaty changes.

"Anyone thinking this is going to be wrapped up by the end of the year is smoking something. It is going to be very complicated," said Graham Bishop, an EU policy consultant.


The ECB says there are 30 banks vital to the euro zone, and Bruegel, a leading EU think-tank whose analysis frequently guides policymaking, has identified roughly 200, accounting for 95 percent of euro zone banking assets, which it believes should be under the ECB's watchful eye.

EU officials expect day-to-day monitoring of smaller euro zone banks will be delegated to national watchdogs.

Berlin's reservations have the potential to delay the ECB getting supervisory power over lenders from 2013.

"It is not helpful that the biggest government is raising objections even before the Commission has made its proposal. If negotiations stall, that's a problem, particularly for Spain," BNP Paribas' Wattret said.

Eric Stein, a fund manager with Eaton Vance Investment Managers, a U.S. investor that buys European government debt, said watching the euro zone's attempts to tackle the crisis has been frustrating.

"Part of the problem in Europe is that all of the countries are fighting for their own national banking interests," he said.

"It's not just in the periphery but also the core. Germany doesn't seem to want the ECB to have control over the landesbanks. This is an impediment in getting a more integrated Europe."

International banks are apprehensive about the proposals.

"The industry will not want fragmentation of EU rules with one lot for the ins and one lot for the outs," said Andrew Gowers, spokesman for the Association for Financial Markets in Europe, which represents banks including Deutsche Bank and HSBC.

(Writing By John O'Donnell; Editing by Erica Billingham)

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Comments (3)
JenkinsComp wrote:
If the above story is true, who voted to allow unelected Central Bankers to have power over the Central Banks of sovereign nations? Oh yeah, no one.

And how will these central bankers bail out their own economies? By borrowing money from – the same people they are bailing out! Isn’t that a fraud? A ponzi scheme that makes Madoff look like an amateur?

Europe has been a corrupt Dictatorship since the EU was formed. The people who died in WW1 & WW2 to guarantee citizens the right to democratically elect their own leaders have been totally disrespected by Eurozone politicians. Shocking

Sep 07, 2012 3:45pm BST  --  Report as abuse
DR9WX wrote:
How much of this nonsense must I endure before the public remembers that Banking and Government is supposed to be of benefit to the people?

Bankers and Politicians are not supposed to decide what happens with most of the wealth that the private sector produces.

The banks and government seem full of people who believe that ‘they know best’. What if they are wrong? What if they are right?

I don’t care if they are right or wrong. I want to know why they control the money. Why they keep diluting my pension, savings and earnings. Why they produced a housing bubble trebling the price of property. Why so many young people are without secure employment. Why they think ‘they know best’.

When the people remember what Governments and Banks should be.
When people realise the amount of wealth that they have taken from us.
When people know that, collectively, we are far more powerful than any bank, central bank or government.

Well on that day, who am I to judge how the people express themselves. The definitions of right and wrong may have to be suspended on ‘that’ day.

Mark my words, ‘that’ day will come.

Sep 07, 2012 10:22pm BST  --  Report as abuse
DR9WX wrote:
The solution

I see that it is obvious that the Dollar will collapse, as will the pound and the euro and so on. China appear to be buying lots of gold and USA has lots of gold. I believe that the USA has a massive benefit from the US dollar being the worlds global reserve currency.

Collapsing of paper currencies is not new and is painful for a short time. A new currency gets under way quite quickly. People need to eat. However, USA could lose reserve currency status. The Euro and China may well have liked to have the reserve currency status next. But – the euro is a mess and China is not going to be easily accepted by the west.

So, what will the next reserve currency look like?

It will have to be something that USA likes the look of as USA has the worlds biggest army and lots of Nukes. USA vs the rest of the world – USA has the most weapons.

So, next reserve currency. Two choices.

A basket of paper currencies. Heavily leaned towards dollars initially! So a mix of USA, Chinese, Japanese, Russian, UK and European paper currencies.

This would work or could work if implemented before the first major currency crashes. By crash I mean hyperinflation. However, how are the major Governments going to decide on the weightings of the currencies?

Option number two. Gold. Gold become the worlds reserve currency. Luckily USA has lots of it. So they won’t need to have wars with oppressive government regimes to free the people and take the gold for safe keeping in fort Knox. (Hopefully).

Also USA stores the gold in Fort Knox for Germany and other countries. So, that will make the people (Americans) with most of the worlds weapons feel safer and important. (Hopefully.)

Economist have pointed out two problems with gold as a reserve currency.

1) There isn’t enough of it.

2) It isn’t worth enough

This tells me all I need to know about economists.

My plan.

Lets be silly for a moment. Gold is currently a commodity, over valued at $1700 an ounce.

In terms of gold, Euro land has 10,000 tonnes and USA has 8,000 tonnes. The Euroland country with the most is Germany at 3,000 tonnes. Germanys gold is safely stored in USA. (Hopefully.)

If gold becomes the worlds reserve currency then it is no longer a commodity. Central banks have 30,000 tonnes and everyone else has 150,000 tonnes. (I like those numbers.)

So, at $1700 an ounce it is a commodity.

What price would it command as the worlds reserve currency?

Lets go with a million dollars an ounce. Note I price it in dollars so as not too spook the Government with the most WMD’s.

So, try $1,000,000 per ounce. The governments of the world can now easily pay of all their debts in gold. So for a while the gold will be zipping about all over everywhere as it seeks out the owners of the debt and extinguishes that debt.

(This is good. All Governments debts are paid of with 20, 30 ,40 or 50% of their gold reserves. In USA terms you would be left with 5,000 tonnes.)

The Governments of the world could even mop up consumer debt. Or in other words still control their people financially. The governemtns could still rack up huge deficits in spending each year.

As a countries gold pile decreased they would have to find ways of earning other countries paper currency to be exchanged for gold to increase their holdings.

Gold doesn’t have to have a fixed price in terms of dollars, euros or whatever. The price is allowed to float. So Governments of the world could print their own money at will but this just increases the price of gold in their own currency. (Good for people in that country with gold.) Printing money would not buy you tonnes and tonnes of other countries gold.

Basically, nothing changes. Banks are still banks. Governments are still Governments. People are still people.
However, all Government debts are paid and World War Three is averted. (A good thing.)

The global economy carries on. However people now focus on gold.

Taking USA as an example. Each year people will want to know how much gold is left. Less USA gold means more dollars are needed to buy the gold. Imports become expensive and eventually (expletive removed) expensive. This stimulates the real US economy and creates productive jobs. At some stage the rest of the world starts buying more of Americas goods. US Government then buys other countries gold with other countries currency. The US pile of gold gets bigger. The US people can now buy more gold for their buck.

From the perspective of the people there is a once in a life time benefit and then an ongoing benefit.

The ongoing benefit is that they now have a choice. Unspent dollars can be saved or invested as they can be now. Or you could buy gold, as you can now. If your government prints a lot of dollars then the price in dollars of your gold goes up. Double the amount of dollars then the price of gold in dollars has doubled.

This is what gold is for. It is a store of value. A highly dense, easily hidden store of value. It doesn’t rust or evaporate. You can bury it in your back yard or sow it into your clothes.

I shall assume that you like the idea. I shall assume that the logic is reasonable. Please comment if you feel I have missed something.

Now, what is the once in a life time benefit and how do we make this happen, should we like the idea?

I think that it is obvious. Re-read the entire text carefully. Read it slowly once a day for a week. Calculate some numbers for your own countries gold reserves. Discuss it amongst your co-workers, friends and family. Is my idea of value? Could it work?

At this point, I have researched the global economy for three months and I am one of UK’s best Systems Analysis and Design Engineers. (I choose not to work as one.)

I can, with your help, get the above system running. I don’t need or want any of your paper currencies whichever country you live in. You don’t have to write to your congress man or any of that nonsense. What I will ask you to do will have some risk. You are to decide how much you are prepared to risk. I ask for NOTHING from you. I do value your time and I really appreciate it if you have read this far. I hope you give it some thought. I hope you give the global economy some thought.

I really do hope you have figured this out for yourself. However, I am happy to tell you provided you then give it some serious thought.

Gold at $1,000,000 dollars an ounce. The politicians will use the gold reserves to pay off the debt. We won’t have to ask them too.

So, how do we get gold to one million dollars an ounce?

Buy physical gold. Keep it. Buy a little bit each month. Hide it. Don’t tell anyone you have it. In the event of your death ensure your benefactor(s) can find it. Make sure they don’t tell anyone they have it either!

In the UK, if the central bank was to share out all its gold with all the UK people we would get 5g each. Less than £200. If all the gold on the planet was shared out with all the people, we would have nearly an ounce each. Say $1500 dollars.

My home is valued at £200,000 and I earn £20,000 a year. All backed by £200 of gold at the Bank of England, should gold become the reserve currency I will be pleased as I have 7 ounces.


We are in a Global Depression and have been for five years.

Gold is currently viewed as a commodity.

Gold, as the reserve currency, will initially be valued at up to one million dollars an ounce.

If the worlds GDP goes up 10% then gold will go up 10% to $1,100,000 per ounce. (assuming that it is the reserve currency.)


To end the Global Depression and avoid World War III buy gold.

Sep 09, 2012 11:57am BST  --  Report as abuse
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