FRANKFURT (Reuters) - The European Central Bank presented draft rules on Friday for how it will supervise commercial banks in the 18-nation euro zone from November, putting itself firmly in the driving seat.
The draft of the Single Supervisory Mechanism’s rules give the central bank wide-ranging powers, including the right to approve mergers and acquisitions and to demand that lenders increase their capital buffers.
From November, the ECB will supervise directly around 130 of the bloc’s top lenders as part the European banking union that aims to create a more level playing to make banks more resilient for future crisis.
The rest of the roughly 6,000 euro zone banks will remain under the brief of national supervisors, though the ECB will have powers to intervene if it deems necessary.
“The ECB will decide on the authorisation of mergers and acquisitions or other operations,” said Ignazio Angeloni, head of the ECB’s financial stability department.
The central bank will also have the last word on granting and withdrawing bank licences and can ask for higher capital buffers than applied by national supervisors to keep systemic risks at bay.
“Here the powers of the ECB is the power to do more,” said Edouard Fernandez-Bollo, the supervisor of French banks and insurers and the man in charge of drafting the framework regulation.
On February 19, there will be a public hearing at the ECB, where bank lobby groups and others can comment on the document. The public consultation ends on March 7 and the final document will be published on May 4.
Before the ECB assumes its new powers on November 4, it wants to make sure that the banks it will be responsible for have sufficient capital to handle the risks on their books, putting the euro zone’s 128 largest banks through an in-depth review.
They may not all end up under its watch. The final list will be drawn up by September. But industry heavyweights like Deutsche Bank and Unicredit are set to be among them.
From November 4, so-called joint-supervisory teams consisting of members from national supervisors and the ECB will monitor these banks. For a bank like Deutsche, for example, the team could be as large as 35 to 50 people.
Smaller banks will continue to be under the watch of their national supervisors. But the ECB can step in to monitor them if necessary, and national authorities will be obliged to inform the ECB if one of their banks gets into trouble.
Five criteria define whether a bank is deemed worthy of direct monitoring by the ECB:
the total value of its assets
its importance for the economy of the country in which it is located or the EU as a whole
the significance of its cross-border activities
whether it has requested or received public financial assistance from the European Financial Stability Facility or the European Stability Mechanism
whether it is one of the three most significant banks in the respective country
The list will be reviewed annually and if a bank does not meet any of the five criteria for three consecutive years, it will go back to being supervised by national authorities.
Reporting by Eva Taylor; Editing by Hugh Lawson