September 13, 2012 / 10:17 AM / 5 years ago

Banking Union rattles non-euro zone members

STRASBOURG, France (Reuters) - An EU proposal to give the European Central Bank (ECB) powers to oversee euro zone banks received negative responses from some non-euro zone governments on Wednesday because of concerns that the new rules could weaken their banks.

The European Commission announced plans to give the ECB primary responsibility for overseeing the euro zone's 6,000 banks, and encouraged the broader European Union to participate in the regime.

EU Commissioner Michel Barnier said some of the 10 non-euro zone states had shown an interest in adopting the single supervisor.

But others are increasingly reticent and fear its possible impact on non-euro zone banks.

Sweden was the first EU country to set up a resolution fund which banks regularly pay into to help bail out other lenders. But bankers there say they don't want to bail-out other lenders.

"I'd be worried if our customers should pay for weak banks in weak countries," Christian Clausen, the Danish chief executive of Nordea, the Nordic region's biggest bank, told Reuters.

Anders Borg, the Swedish finance minister, said it was essential that Sweden continued to handle its banks "in an austere and orderly way so that we don't incur problems".

"It is central to secure that Swedish taxpayers are not inflicted with large burdensome responsibilities that we fundamentally don't think we have," he said on Wednesday.

One concern is that the new banking union may strip capital from less well off banks in non-euro zone countries to prop up lenders in the euro zone. Sixty-five percent of banks in central and eastern Europe are owned by euro zone banks in France, Austria, Germany and Spain, for example.

If the ECB required the euro zone parents to boost their capital, they might want to dip into subsidiaries to plug gaps.

"Our regulator has been able to prevent outflows," one EU diplomat said on condition of anonymity. "But once you have the euro regulator who is going to prevent that."

Because of these concerns, the Bulgarian Central Bank said on June 27 at a banking roundtable that smaller countries would find it difficult to support the proposal.

In the Czech Republic, 95 percent of banks are under foreign ownership and many have more loans than deposits which they fear will be stripped of capital to shore up less well off banks.

"Weakening national supervision, when we have one performed by the Czech National Bank, which works very well, ... is not something that we would regard as beneficial," Petr Necas, the Czech prime minister told a regular press conference on Wednesday. "The position of the Czech government and the Czech National Bank is very cautious and very sceptical."

Hungary wanted to know what it would get out of joining.

"We will focus on the question of a fair balance of rights and obligations," said Marton Hajdu, a Hungarian government spokesman. "And on how to keep under control potential impacts - direct and indirect -- on the banking sector."

The emergence of a single supervisor is also sparking doubts about whether to join the single currency, as they fear the supervisor could infringe on their sovereignty.

Though Denmark and Britain have secured opt outs from the currency, the other eight countries were scheduled to join it.

However, Sweden has not made changes to its central bank law that are required for membership. And Bulgaria, citing deteriorating economic conditions in the euro zone, announced on Sept 3 that it was freezing plans to adopt the euro.

Latvia, Romania, the Czech Republic, Hungary and Lithuania are all in theory still expected to join.

Some countries say the banking union may cause them to reconsider adopting the euro as handing over power to a central regulator was not stipulated in their accession agreements.

That raises tricky legal questions, as conditions for countries joining the European Union include eventual adoption of the single currency.

"If you agree to do something but the nature of that thing changes fundamentally, does your obligation stay the same?" asked one diplomat.

Additional reporting by Tsvetelia Tsolova, Anna Ringstrom, Johan Sennero, Robert Muller and Michael Winfery.; Editing by Sebastian Moffett, Ron Askew.

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