LONDON (MNI) – A future EU banking union should be able to focus on
the resolution of the large cross-border banks, European Central Bank
President Vitor Constancio said today.

Speaking at the House of Lords EU sub-committee, Vitor Constancio
said that the banking union should also concentrate on supervision first
– the question of deposit insurance could come later:

“My own opinion is that deposit insurance can wait some more time
and can come at the end. What is important to ensure financial stability
is effective supervision that can detect early on the problems that are
emerging in different banking sectors.”

“I think personally that what is most necessary in the steps
toward a banking union is to have resolution for the big cross-border
banks in Europe,” Constancio said.

On the controversial question of direct aid from the European
Stability Mechanism for the recapitalisation of ailing banks,
Constancio made clear that the agreement reached by EU leaders on Friday
would not allow this to start until 2014.

“It delays until the beginning of 2014 any operation of directly
capitalising banks.”

The comment comes as Spain and Ireland push for direct aid for
their troubled banks in the face of German insistence that such aid will
not cover so-called legacy assets.

Constancio was dismissive of ideas that there could be a conflict
between the ECB’s price stability goal and its role as the single
European bank supervisor.

“I think this second potential problem (conflicts between monetary
policy objectives and supervisory objectives) is very much exaggerated
… First comes price stability and that is clear. The main
reputation of the institution is dependent on achieving their priority
of price stability.”

Bank of Finland Governor and Chairman of the EU’s High Level Expert
Group on EU Bank Restructuring Erkki Liikanen defended his report in
front of the UK Commission on Banking Standards in London today.

He told the committee led by MP Andrew Tyrie that the HLEG had
deemed it important to keep proprietary trading and market making within
the sphere of regulation.

But he conceded that the split would between retail banking
activities and market making/prop trading would face challenges of
enforcement.

Liikanen noted that in some areas of banking it would be harder to
draw the line and that bank governance would require strengthening
in order to make sure that the new ringfence be observed.

The two appearances by such leading euro zone central bankers
highlights the increasing concern of the UK’s authorities that EU
legislative activity in this field poses a threat to the competitiveness
of the City.

–London newsroom: +44-207-862-7492; email: ukeditorial@mni-news.com

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