–Adds New Quotes, And Context On Importance Of Pan-EMU Bank Supervision

FRANKFURT (MNI) – The European Central Bank should have a
decision-making body for bank supervision that is separate from the
Governing Council in order to prevent the ECB’s new supervisory role
from encroaching on its monetary policy decisions, ECB Executive Board
member Joerg Asmussen said Tuesday.

“The overriding goal of price stability must remain untouched.
Monetary policy must be separated from banking supervision on the
outside and inside the organization, including staff,” Asmussen said in
prepared remarks for delivery at a banking conference here. “The means
to achieve this involve Chinese walls and the creation of a new
decision-making body next to the ECB Council that is responsible for all
supervisory tasks.”

Asmussen repeated that the ECB would only take on the role of
supervisor if its independence were not affected and if it had all the
necessary instruments to carry out supervision effectively. This
includes access to “all relevant information” about the banks being
supervised and the ability to wind down insolvent banks.

“In my opinion the ECB will not take on any responsibility without
this minimum infrastructure, because the risks to the institution’s
reputation would be too large. The reputation risk lies only with us,”
he said.

Asmussen also repeated that current doubts in financial markets
about the euro’s continued existence are “unacceptable” for the central
bank and are impacting the transmission of monetary policy.

Asmussen said it would be “sensible” to limit supervision to banks
within the Eurozone, though countries outside the Eurozone could have
the option of putting their banks under European supervision as well.

Asmussen also said it was “sensible” for supervision to be limited
to banks operating across borders or to “systemically relevant” national
banks. Anything more is not possible in the shortened timeframe
envisioned for creation of the supervisory body, he said.

“To organize the supervision of all banks in the Eurozone by the
start of 2013 is neither imaginable nor the right goal,” he said.

A Eurozone-wide banking supervisor is considered one of the pillars
of the currency bloc’s efforts to form a stable monetary and economic
union. The European Commission is expected to unveil its plan for
Eurozone-wide financial supervision on September 12.

The creation of a banking supervisor is also considered a key
condition for the ESM rescue fund eventually to be granted the authority
to recapitalize banks directly.

Asmussen said that while the ESM should have that authority “as
soon as possible,” it was also important “to do things right and not
commit to half-finished solutions under time pressure.”

He reiterated the need for fiscal and economic reforms, stressing
that, “financial market union alone cannot solve the crisis.”

— Frankfurt bureau: +49 69 720 142; email: ccermak@mni-news.com

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