Central bank of Republic of Slovenia welcomed the European Commission’s proposal for a single supervisory mechanism for all banks in the eurozone on Wednesday, pointing to positive effects such a system would have, including in transferring the burden of crisis busting onto the banking sector and increasing the public’s trust in banks.
The proposal was presented to the plenary session of the European Parliament by European Commission President Jose Manuel Barroso. He said that a single supervisor was necessary for all banks in the eurozone as there were risks everywhere and banks were multinational, while the rules were still national.
Member states and EU institutions have yet to form their official positions on the proposed solution, but the documents available so far indicate that a banking union brings several changes for banks in the eurozone by setting up a four-pillar system of banking regulation, Banka Slovenije said.
The first pillar is a higher level of harmonisation of credit rating rules for the banking sector, the second pillar is upgrading European banking supervision under the leadership of the European Central Bank (ECB) in cooperation with national regulators, and a third introducing a European bank deposit guarantee fund. The forth pillar will be a new European solution to rescue banks and a special European bailout fund.
The Slovenian central bank expects the single supervisory mechanism to further enhance cooperation between national banking regulators or central banks and the ECB, especially with regards to the proposal for a gradual approach to introducing the ECB’s powers in this field and the roles the national regulators would keep.
This means that many tasks would still be performed by national supervisors, and the mechanism would not affect the tasks and powers of national banking regulators in relation to banks from third countries, Banka Slovenije stated in a press release.
The central bank maintains that the introduction of European funds to guarantee for savings deposits and bank rescue would represent an additional burden for Slovenian banks that would be included in the two funds.
However, the central bank says that the effects, in as far as they can be predicted, would be positive both on the implementation of the goal to shift the burden of crisis-solving on the banking sector and thus reduce the moral hazard, and on increasing the trust by the public and investors in banks in a credible way.
Banka Slovenije governor Marko Kranjec however commented that he did not believe a unified supervision could be implemented for all the banks in the eurozone and that only 150 systemic banks would be included, while the rest would remain in the hands of national central banks.
Speaking on the sidelines of a meeting at the Slovenian Chamber of Commerce and Industry (GZS), Kranjec noted that the new rules would probably not be stricter than those already used by Banka Slovenije, adding that a full unification of rules throughout the eurozone would not be possible due to the diversity of the systems.
Similarly, economy expert Mojmir Mrak told the STA that the national central banks would probably retain an important role, while the ECB would only directly supervise the biggest banks.
Operationalisation of what he finds a very ambitious idea may also prove to be very problematic, although some sort of unified supervision is needed for a monetary union, stressed Mrak, adding that the main problems may be in details, which are still unknown.
Barroso’s proposal for more supervision from the ECB was also welcomed separately by Slovenian MEPs Milan Zver (SDS/EPP), Romana Jordan (SDS/EPP) and Mojca Kleva (SD/S&D), who all noted that a stronger banking union was needed in the continued fight against the financial crisis.
Moreover, Zver stressed that the unified supervision mechanism was only the beginning, that the role of the ECB had to be increased, and that it was most important for the EU to “stick together and cooperate”.