Europe bank accord lauded but long road ahead
(BRUSSELS) - Europe's new bank supervision system, agreed after marathon talks, is welcomed as a key step towards preventing any repeat of the crisis which nearly brought down the euro but some reservations remain.
The Single Supervisory Mechanism (SSM), set up under the European Central Bank, will have direct oversight initially over some 200 of the eurozone's biggest and most important banks.
At the same time, it will have ultimate authority over all the single currency area's 6,000 banks but most will remain the wards of their national regulators, with the SSM stepping in only if the problems look really serious.
"This is a historic decision," said Guido Ravoet, the head of the European Banking Federation.
The SSM is the first part of a planned 'Banking Union' which in due course will have the power to wind up failed banks and provide deposit guarantees across the eurozone.
The aim is to prevent any repeat of 2008-09 when the banks, condemned for reckless risk-taking which led to mountains of bad debt, queued up for state aid to save them -- as in Britain, Ireland, Spain, to name just a few.
With literally hundreds of billions involved, some countries soon found their own finances in tatters, with Ireland forced to call in the EU and International Monetary Fund and Spain getting help earlier this year.
"The crisis came from the banks and the mechanisms have now been put in place to ensure that things will not be like before," said French President Francois Hollande.
"It is the first step -- but there are three," said Georges Pauget, former head of French bank Credit Agricole.
For Pauget, the SSM will not be able to exert its full influence until there is a winding up facility for failed banks and the eurozone deposit guarantee system to protect bank customers.
"If you do not have the bank resolution system, if the process (in case of bank failure) is not known and clear, you risk having a supervisor short" of the powers required, he said.
Nicolas Veron, economist with the Bruegel Institute in Brussels, said he had some reservations about the exact relationship between the ECB and the national regulators.
"There are some banks which will have two sets of supervisors and which will be able to play one off against the other," Veron said.
"We saw that in Spain," between regional and national regulators, he said, with the result that the Spanish banks escaped proper oversight until forced to seek government help after their massive real estate loans turned sour.
Lobby group Attac also made that point, criticising what it described as an "incomplete and dangerous" accord and charging that just as in Spain, local savings banks in Germany will largely avoid proper oversight in the new system.
Another potential concern is how the new system will cope when banks in countries outside the new regime run into difficulties -- Britain has a huge financial services industry but is staying out of the SSM.
"If you have a major bank failure in another part of the world, you will necessarily face the problem of contagion," said Pauget.
"The most important question then, now, is whether we have the means (in the new system) to cope with the effects of contagion. The answer is yes."