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European Lawmakers Expand Power of Central Bank European Lawmakers Expand Power of Central Bank
(about 4 hours later)
BRUSSELS — European Union legislators on Thursday overwhelmingly approved a law that puts about 150 of the euro zone’s largest banks under the scrutiny of the European Central Bank. BRUSSELS — European Union legislators overwhelmingly approved a law on Thursday that puts about 130 of the euro zone’s largest banks under the scrutiny of the European Central Bank.
The vote on the legislation, which contains provisions that would give the European Parliament greater oversight of the E.C.B. when the bank assumes its newly won authority, is an important but not final step in a winding process that began in early 2012, during one of the most fevered periods in the euro zone financial crisis. The legislation contains provisions that would give the European Parliament somewhat more oversight of the central bank when the bank assumes its new authority. The vote is an important development, but not the final one, in a winding process that began in early 2012, during one of the most fevered periods in the euro zone financial crisis.
On the heels of the approval, the so-called Single Supervisory Mechanism is expected to start work during the autumn of 2014 after the European Central Bank conducts a “stress test” on the lenders coming under its aegis. European Union governments still must give the law one final approval though that is expected to be a formality. The measure still needs approval from European Union governments to take effect, though that is expected to be a formality. The Single Supervisory Mechanism it creates is expected to start work during the autumn of 2014 after the European Central Bank conducts a “stress test” on the lenders coming within its purview.
The idea is that the central bank would do a better job than national supervisors of nipping financial problems in the bud so that governments do not need to resort to bank bailouts that destabilize the euro and penalize taxpayers. The idea is that the central bank would do a better job than national supervisors of nipping financial problems in the bud so that governments would not need to resort to bank bailouts that destabilize the euro and penalize taxpayers. Once up and running, the new supervisory authority will have a range of powers to intervene when it detects problems, including the ability to conduct inspections that could lead to sanctions on banks or their managers.
The approval also was the first step in a multistage process toward a broader, pan-European vision of banking being referred to as a banking union. The next stage of that effort — creation of a single system for shutting down or restructuring banks — is under way. But progress has been slowed by the reluctance of Germany to commit to a unified banking system that could lead to euro zone member nations being responsible for one another’s debts. The measure is the first step toward a broader, Europe-wide vision of banking. The next stage of that effort, creation of a single system for shutting or restructuring banks, is under way. But progress has been slowed by the reluctance of Germany to commit to a banking union that could lead to euro zone nations’ being responsible for one another’s debts.
Even so, Thursday’s approval was among the “most important votes of this parliamentary term,” Michel Barnier, the European Union commissioner overseeing financial services, told lawmakers after the vote. The law will help to “improve and restore confidence our citizens have in our system, as well as the confidence of the rest of the world in our system,” he said. Even so, the approval on Thursday was among the “most important votes of this parliamentary term,” Michel Barnier, the European Union commissioner overseeing financial services, told lawmakers after the vote. The law will help to “improve and restore confidence our citizens have in our system, as well as the confidence of the rest of the world in our system,” he said.
Lawmakers had delayed the vote, originally scheduled for Tuesday, amid demands for more power to oversee the central bank. Mario Draghi, president of the European Central Bank, issued a statement hailing the vote as “a real step forward in setting up a banking union, which is a core element of a genuine economic and monetary union.”
The approval came only after the president of the Parliament, Martin Schulz, told members that Mario Draghi, the president of the European Central Bank, had agreed to “strong parliamentary oversight” resulting in “a high degree of accountability.” Lawmakers had delayed the vote, originally scheduled for Tuesday, reflecting demands for more power to oversee the central bank.
The Parliament said the central bank had agreed to share detailed records of meetings of the bank supervisory board. The approval came only after the president of the European Parliament, Martin Schulz, told members that Mr. Draghi had agreed to “strong parliamentary oversight” resulting in “a high degree of accountability.”
The European Parliament also would share power with European Union governments over the selection of the head and the deputy head of the supervisory board. And the Parliament’s influential economic and monetary affairs committee would have the right to summon the supervisory board’s head for hearings. Under the agreement, the central bank had agreed to share detailed records of meetings of the bank supervisory board with the Parliament, but the bank would not be required to provide copies of the minutes of the meetings.
The demands by the Parliament, the democratically elected arm of the European Union, were signs of its growing assertiveness. The European Parliament also would share power with European Union member governments over the selection of the head and the deputy head of the supervisory board. And the Parliament’s influential Economic and Monetary Affairs Committee would have the right to summon the supervisory board’s head for hearings. But the Parliament would not have the power to veto actions taken by the supervisor or by the central bank’s governing council.
The new Single Supervisory Mechanism will be compulsory for banks operating in the euro area. European Union countries that are not part of the single currency bloc can still opt to put their banks under the system. The demands by the Parliament, the legislature of the European Union, were signs of its growing assertiveness.
The lawmakers, meeting in Strasbourg, France, voted 559 in favor of making the central bank the single supervisor. Sixty-two members voted against the measure and 19 abstained. In his statement, Mr. Draghi said: “We will do our utmost to put in place all organizational requirements, with the aim of assuming our supervisory responsibilities one year after the legislation enters into force, and look forward to working with national authorities to contribute to the restoration of confidence in the banking sector.”
In a separate development on Thursday, a senior European Union court official said in an opinion that one of the rules devised by E.U. officials to stem the euro crisis should be rolled back. The new Single Supervisory Mechanism will be compulsory for banks operating in the euro area. European Union countries that are not part of the currency bloc will be able to opt to put their banks under the system.
Niilo Jaaskinen, an advocate-general at the European Court of Justice in Luxembourg, said the agency based in Paris that oversees the European Union’s financial markets should not be allowed to ban short-selling in any member state. The British government had challenged the rules, saying they went beyond the jurisdiction of the European Securities and Markets Authority. The lawmakers, meeting in Strasbourg, France, voted 559 to 62, with 19 abstentions, to make the central bank the single supervisor.
Opinions handed down by advocates-general are not binding on judges. But judges do follow the advice in a majority of cases when they make a definitive ruling several months later. Originally, France and the European Commission called for all 6,000 euro-area banks to be included in the new supervisory structure. But Germany successfully resisted that plan, arguing that supervising so many banks would make the central bank’s job unmanageable. The government in Berlin faced intense pressure from a powerful domestic banking lobby trying to shield many small savings banks from closer scrutiny.
Germany nonetheless agreed to let the European Central Bank, at its discretion, step in and take over supervision of any euro zone bank.
In most cases, only banks holding assets worth 30 billion euros, or $40 billion, or those holding assets greater than 20 percent of their country’s gross domestic product would be directly regulated by the European Central Bank. Central bank officials say that means in practice that about 130 banks, representing about 85 percent of bank assets in the euro zone, would fall under the direct oversight of the new supervisor under a formula agreed to by finance ministers last December.
In a separate development on Thursday, a senior European Union court official said in an opinion that one of the rules devised by European Union officials to stem the euro crisis should be rolled back.
The official, Niilo Jaaskinen, an advocate-general at the European Court of Justice, in Luxembourg, said the agency that oversees the European Union’s financial markets should not be allowed to ban short-selling in any member state. The British government had challenged the rules, saying they went beyond the jurisdiction of the agency, the European Securities and Markets Authority, which is based in Paris.
Opinions handed down by advocates-general are not binding on judges. But judges follow the advice in a majority of cases when they make a definitive ruling several months later.