The EU is arguing amongst themselves over what kind of institution will be subject to ECB oversight. There are two ways to determine this with varying levels subjecting the bank to ECB oversight, the size of the institution, €2.5bn, €20bn or €60, or the size of the institution relative to the host country’s GDP, 20%, 50% or 75%.
Regardless of those thresholds, ECB oversight automatically applies to any bank with a cross-border presence, but the ECB will use the national regulators to do most of the work. The ECB retains a panic button whereby it can usurp the national regulator’s authority at any time and directly supervise a bank whether or not it meets the foregoing criteria.
This is all very interesting. Why would everyone be arguing about the size of bank to be regulated when the “cross-border presence” and the panic button allow the ECB to supervise any bank it wishes? It’s because the rules will be cleverly crafted so that favored institutions fall outside the ECB’s supervision.
The ECB is ruled by a committee where all 17 countries have a vote. This means that there will be horse-trading and that no country will have to allow the ECB to regulate an institution by collecting enough votes to maintain national authority over an institution. This will quickly devolve into Johan not regulating Jean’s banks, tit for tat.
These are the six elements for a banking union:
- A joint depository insurance scheme
- The type of institution to be regulated
- A set of rules
- An implementation schedule
- A way to legally allow countries outside the eurozone to participate in an ECB-led banking union
- A plan to deal with banks that are already in trouble or have been bailed out.
So far, it appears that #2 is being negatively compromised. Look for elements #2 -5 to be negotiated for as long as possible, because the real sticking points are #1 and #6. These points will take German money to implement, lots of it.
Undoubtedly, the negotiations will show just enough progress to enable more can-kicking, but, remember— there is no banking union unless there are concrete steps to implement the elements above. There should be a joint depository insurance plan with money not lines of credit, all institutions should be regulated, strict rules issued and enforced by the ECB, an implementation schedule, money to deal with banks already in trouble and a way for all EU countries to legally participate.