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German bankers clash on ECB supervision plans
September 4, 2012 / 8:24 AM / 5 years ago

German bankers clash on ECB supervision plans

FRANKFURT (Reuters) - Leading German bankers clashed on Tuesday over plans to give the European Central Bank new supervisory powers, with the co-head of Deutsche Bank saying oversight would work only if it covered a wide range of banks, not just Europe’s biggest.

Juergen Fitschen, designated co-successor of Josef Ackermann, outgoing CEO of Germany's largest business bank, Deutsche Bank AG, addresses the media during the bank's annual news conference in Frankfurt, February 2, 2012. REUTERS/Ralph Orlowski

The comments by Juergen Fitschen at a banking conference in Frankfurt highlighted a divide in Germany, Europe’s biggest economy, over the scope of the ECB’s new powers.

The European Commission, like Fitschen, wants the central bank to monitor a broad swathe of banks. But the German government and the country’s smaller banks are pressing for a more limited remit, focused only on those banks considered “systemically relevant”.

ECB board member Joerg Asmussen also weighed in at the conference, saying it would be unwise to expect the central bank to take on responsibility for monitoring all banks in the euro zone from day one.

The debate over the ECB’s role has erupted a week before the Commission unveils new proposals for creating a “banking union” in Europe, a step seen as vital for breaking the link between failing banks and indebted governments.

Fitschen said it was illusory to believe problems could be avoided by monitoring only big banks like Deutsche, noting that Bankia had become a national problem for Spain and the broader euro zone, though it was not considered systemically important by international regulators.

“No one had Bankia on the list to trigger a crisis,” he said.

Bankia, nationalised by the Spanish government in May, is emblematic of the sector’s reckless lending during the country’s property boom. Spain is now seeking a euro zone bailout of up to 100 billion euros (79 billion pounds) for its troubled banks.

Fitschen rejected the argument of smaller German savings and cooperative banks, which want to continue to be regulated at a national level. “If we in Germany argue that we are different, we invite other countries to also argue for exemptions,” he said.

MORAL HAZARD FEAR

Georg Fahrenschon, president of the association of German savings banks, however, told the conference that saddling the ECB with hundreds or even thousands of banks to monitor would be onerous and counterproductive.

“Sometimes I get the impression that the whole exercise is designed to unload so much routine work onto the ECB so it no longer has the time or capacity to properly scrutinise the really dangerous institutes,” Fahrenschon said.

Both he and his cooperative bank colleagues expressed concern that a common supervisor was a step on the path to a pan-European deposit guarantee scheme that would end up penalising strong institutions.

“We fear that this system would include a system of shared liabilities without the opportunity to influence the business practices of banks outside of Germany,” said Uwe Froehlich, head of the German cooperative banking association. “There is an issue of moral hazard.”

The bank supervision debate was triggered in June when European leaders met in Brussels and agreed to allow the euro zone’s new permanent rescue fund to inject aid directly into troubled banks.

German Chancellor Angela Merkel insisted at the summit that such direct aid be permitted only once a centralised banking supervisor, housed in the ECB, was in place. But it now seems clear that forging consensus, even within Germany, on what this supervisor should look like will be difficult.

The ECB, which has been forced into a more active role in combating the euro zone debt crisis in recent months, has cautioned against assuming too many new responsibilities.

“Organising the supervision of all banks in the euro zone by the start of 2013 is pointless and unrealistic,” Asmussen told the conference.

He said a European supervisor should have the right to delegate supervision of smaller institutions back to national authorities, while retaining the right to override national regulators in exceptional circumstances.

German Finance Minister Wolfgang Schaeuble said on Monday that it would be impossible to have the new supervisory body up and running by January 2013, the stated target date. Top officials in Brussels insist that deadline is still valid.

Reporting By Edward Taylor and Jonathan Gould; Writing by Noah Barkin; Editing by Will Waterman and David Stamp

Our Standards:The Thomson Reuters Trust Principles.
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