Banking supervision can work only for all banks: ECB's Noyer

(FRANKFURT) - Setting up a single European banking supervisory body can only work if it covers all banks, not just the region's biggest, a top European Central Bank official said Thursday.

A new EU banking supervisor "must certainly cover all 6,000 banks in the euro area," ECB governing council member and head of the Banque de France Christian Noyer told the daily Frankfurter Allgemeine Zeitung in an interview.

"It's more the smaller banks that run into difficulty in a crisis, let's say the Spanish savings banks or the small Irish banks," Noyer argued.

"If the project is only going to cover the 20 biggest banks, you might as well leave it," he said.

EU leaders want to entrust the ECB with the supervision of the eurozone's banking sector, but there is disagreement over how much power the new institution should have.

Germany, for example, insists its small savings banks remain under the remit of its own national watchdog.

But Noyer insisted "we don't want an army of inspectors at the ECB. Ninety-five percent of tasks can be carried out in the euro countries. With a banking union, the ECB could carry out inspections to identical standards across the entire euro area. That would give more credibility to the supervisor."

Turning to the ECB's controversial new programme, known as OMT, to buy up sovereign bonds of debt-wracked countries, Noyer said it was a weapon of deterrence.

"My feeling is that the markets understand very quickly that they can't win against the ECB. The announcement alone that we were taking these measures has calmed the markets," Noyer said.

He hoped the OMT would have a very rapid effect, the French central banker said.

"I'd be surprised if such a scheme still exists in a few years, even if it's not used any more," Noyer said.