– Adds Comments From Finance Ministers, ECB Vice President

BRUSSELS (MNI) – Senior EU officials expressed confidence Wednesday
that EU finance ministers meeting here would succeed in bridging their
divergent views over a plan to centralize bank supervision in the
Eurozone in the hands of the European Central Bank.

“I am very confident of a solution,” a senior official involved in
the talks said Wednesday morning ahead of the meeting. “The
responsibility on [EU finance ministers] shoulders is enormous. The
whole sequence we’ve planned rests on the deadline for a deal on the
single supervisory mechanism to be met by the end of this year,” he
said.

Wednesday’s talks are set to focus on a compromise plan limiting
the ECB’s direct supervision to banks with over E30 billion in assets or
whose assets represent more than 20% of the GDP of their home country.
Under the compromise plan, prepared by Cyprus, which holds the EU’s
rotating presidency, the ECB would also take direct responsibility for
banks that operate in three or more countries and for those that receive
aid from the Eurozone’s bailout funds.

The ECB would however retain the right to intervene in any Eurozone
bank “at any time, on its own initiative or upon request by a national
competent authority.”

The compromise aims to appease ECB, European Commission, and French
calls for the common supervisory system to cover all banks, with German
insistence that smaller banks remain under national supervisory
authorities.

In a public session of the meeting, French Finance Minister Pierre
Moscovici told colleagues that France was prepared to accept the E30
billion threshold.

ECB Vice President Vitor Constancio, however, said that the three
thresholds suggested in the proposal would lead to “quite a sizeable
number of banks” coming under the direct responsibility of the central
bank, which could undermine the plan’s credibility.

“As the number of such banks increases, it makes it more difficult
for the market and for observers outside to find the system credible,
because of course, the centre is not going to have an army of
supervisors that can supervise all those banks,” Constancio said.

Scrapping the “irrelevant” proposal requiring the ECB to directly
supervise banks with branches or subsidiaries in two or more countries,
would help, he said.

On the sensitive issue of how countries that don’t yet use the euro
as their currency but seek ECB supervision might participate as equals
in the system, the compromise calls for all countries to have an equal
vote. If the ECB Governing Council were to overrule supervisory
decisions, non-Eurozone members could opt out.

Swedish Finance Minister Anders Borg, the most vociferous critic on
the issue, said, “We will not participate in the banking union for the
foreseeable future.” He cited what he felt was the “unequal treatment”
of non-Eurozone countries versus Eurozone members.

Finance ministers still appear far from an agreement over rules to
ensure that the ECB cannot automatically dictate regulatory decisions
within the European Banking Authority, the EU body in charge of
implementing regulatory decisions and mediating between national
authorities.

The UK and Sweden have said they would only agree to allow other
countries to go ahead with the ECB bank supervision plan if this issue
is addressed. Unanimous approval by all EU member states is needed for
the plan.

EU leaders have vowed to agree on the common bank supervision
framework by the end of the year and officials say another meeting of
finance ministers next week is a possibility.

Several ministers expressed their determination to strike a deal at
this meeting. Sweden’s Borg said he was “ready to negotiate the whole
night.”

German Finance Minister Wolfgang Schaeuble, however, suggested that
all night may not be enough to reach a complete deal. The composition of
the ECB supervisory board’s proposed steering committee could be left
until next year, he said.

Schaeuble also struck a discordant note by downplaying the urgency
of reaching an agreement at Wednesday’s meeting, saying that he hoped
only for a deal “before Christmas”.

Ensuring the independence of the ECB’s monetary policy while
subjecting its supervisory decisions to necessary democratic controls,
remained “the key issue for Germany,” he said.

To ensure this independence, the ECB’s Governing Council should not
formally have the last say on supervisory decisions, as under the
current proposal, Schaeuble explained.

Although he expressed confidence that a compromised could be
reached to get around the issue, the possibility of solving the issue
through an amendment to the EU treaty should be kept open, he said.

UK Finance Minister George Osborne said that he saw “lots of room
to make an agreement today” but reiterated his concerns about voting
rules in the EBA.

The rules need to be “future-proofed” to protect the rights of
countries outside the system in the event that more countries join it in
the future, he said.

Osborne also called on the finance ministers to make clear that the
ECB’s supervision is limited to banks and not “market infrastructure”
organisations such as clearing and settlement banks.

Osborne also called for the ECB’s powers in non-participating
countries to be limited to those of the national supervisor. The UK
would not be comfortable if, for example, the ECB were able to “do
things to Deutsche Bank in London that the Bank of England could not do
to HSBC in Paris,” he said.

–Brussels Newsroom, +324-952-28374; pkoh@mni-news.com

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