Finally, after months of anticipation, European Commission President José-Manuel Barroso outlined his “decisive deal”: a big picture vision of an ideal, sound roadmap for Europe’s financial future.
The EC proposes to create a single supervisory mechanism for banks in the euro area – starting on 1 January 2013. Under the proposals the European Central Bank will have “ultimate responsibility for specific supervisory tasks related to the financial stability of all euro area banks”, though it says national regulators will “continue to play an important role in day-to-day supervision” as well as in preparing and implementing ECB decisions.
From day one, the ECB “will be empowered to take over the supervision of any bank in the euro area if it so decides, in particular if the bank is receiving public support”. For all other banks, ECB supervision will be phased in automatically: on 1 July 2013 for the most significant European systemically important banks, and on 1 January 2014 for all other banks in the euro area.
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- Will European regulators make their January 2013 regulatory timeline?
- How much adjustment of current EU rule-books will be required to make them all fit together?
- Will the roadmap finally give regulators and the industry a common way to look at data?
The Commission is also proposing that the ECB develop a Single Supervisory Handbook that would cover all 27 European Union countries, bringing banks in non-euro member states in line with the eurozone banks. This is a massive step for 27 countries with differing legal systems and cultural approaches to the financial sector.
The proposals were presented by EC officials as safeguarding taxpayers from having to bail out failing banks in the future. “We want to break the vicious link between sovereigns and their banks. In the future, bankers’ losses should no longer become the people’s debt, putting into doubt the financial stability of whole countries,” said Barroso.
This was echoed by Internal Market Commissioner Michel Barnier. “Banking supervision needs to become more effective in all European countries to make sure that single market rules are applied in a consistent manner. It will be the role of the ECB to make sure that banks in the euro area stick to sound financial practices. Our ultimate aim is to stop using taxpayers’ money to bail out banks,” he said. “We have proposed a mechanism to separate supervision from monetary policy within the ECB, and made sure that the ECB will be accountable to the European Parliament for supervisory decisions”.
The proposals come in three parts. First is a regulation conferring “strong powers” on the ECB for the supervision of all banks in the euro area, with a mechanism for non-euro countries to join on a voluntary basis.
A second regulation aligning the existing regulation on the European Banking Authority to the new setup for banking supervision in order to make sure that EBA decision-making remains balanced and the EBA continues to preserve the integrity of the single market.
The third step is a communication outlining the EC’s overall vision for the banking union, covering the single rulebook and the single supervisory mechanism, as well as the next steps involving a single bank resolution mechanism.
Specific supervisory tasks will be shifted to the European level in the euro area – those that the EC says “are key to preserving financial stability and detecting viability risks of banks”. The ECB will become responsible for tasks such as authorising credit institutions; compliance with capital, leverage and liquidity requirements; and conducting supervision of financial conglomerates. The ECB will be able to carry out “early intervention measures” when a bank breaches or risks breaching regulatory capital requirements by requiring banks to take remedial action.
The groundwork is not a small task, and it is highly ambitious in the timelines set, but if an agreement on proposals can be reached before the end of 2012 – and that is a BIG if – to help build a common framework, might this finally be the common way to look at data? The boldness and ambition of the plan will mean that the EU is the place where streamlining rules becomes a political and regulatory reality. Clearly there is a lot of work to do, and the breadth of the groundwork of the roadmap means that many pieces are going to have to fall into place very quickly, which seems unlikely given frequent regulatory atrophy, exhibited by debates over regulations such as CRD IV and MiFID II.
Political roadblocks are already being put in place – Germany, Sweden, Poland, and the Netherlands have called for a more realistic timetable, and firms might be somewhat relieved that this could take a year of negotiations, especially with everyone wielding veto power. The EBA plans are grandiose even before they begin – the rulebook should have “rigorous, consistent rules in line with international standards” – but there are potentially big wins for Europe if they get this right.
Among these wins could be cost savings, and a reduction of operational and systemic risk. Aside from the ambitious timescales, however, it is going to require people, process, and governance to do it right, which will be a challenge. Pulling together, on the other hand might, just might, offer a new collaborative way for all participants to engage on tough new standards.
- The desire for regulators to obtain clear and meaningful views of the banking system has been at the heart of regulatory reforms
- European regulatory implementation schedules will face acceleration if a roadmap is successfully agreed
- The European roadmap has the transformational potential to streamline data collection and reporting across the continent.