FRANKFURT (MNI) – The plan to create a joint Eurozone bank
supervisor within the European Central Bank is illegal,, according to a
legal opinion prepared for EU finance ministers, the Financial Times
reported on Thursday.

The opinion, from the European Council’s top legal advisor, finds
that the idea of housing a new centralized banking regulator within the
ECB goes “beyond the powers” allowed under current European Union
treaties to change governance rules at the central bank, the business
daily said.

The leval advisor said a treaty change would be required before a
bank supervisory board within the ECB could be given any formal
decision-making powers as the European Commission has proposed.

The FT also noted that non-Eurozone EU countries participating in
the bank supervisory regime would have no legal say in any decisions at
the ECB. Having such input is a principal demand of countries like
Sweden and Poland, the FT observed.

The newspaper noted that the legal opinion is likely to add to
Germany’s reluctance to rush into rapid implementation of the new
supervisory body. It will exacerbate Berlin’s concerns about
independence of ECB monetary policy, since it puts into question the
establishment of a separate decision-making process for bank
supervision. And it casts doubt on Germany’s demand for more clout in
supervision matters.

Some officials in the Eurozone, and at the European Commission, are
pushing to have the new supervisory body operational by the end of the
year, though that deadline is becoming increasingly unrealistic.
Germany, the Netherlands and some other “core” Eurozone countries argue
that it will take a lot longer to establish an effective centralized
regulator and that quality is more important than speed in setting it
up. Some non-EMU countries, including Sweden, have made the same
argument.

The creation of a joint European banking regulator is expected to
be one of the main topics at the summit of EU leaders that starts later
today in Brussels.

The legal opinion does allow for possible compromises, including
the establishment of a board to prepare draft supervision decisions, the
FT said. While final decisions would remain with the ECB, non-Eurozone
members would have full-voting rights at least in drafting advice.

The ECB could also choose to delegate tasks, thus making the
proposed board stronger, the FT continued, though it added that some
officials involved in the discussions “were unimpressed” with the idea
of voting rights on a committee that would be unable to make formal
decisions.

“Now it is clear they can’t have a say, fewer outs are likely to
join,” the FT quoted one official as saying.

The legal opinion also challenged the legality of member states
deciding how rules were applied concerning their banks, even under ECB
supervision, the FT added.

— Frankfurt bureau: +49 69 720 142; e-mail: frankfurt@mni-news.com

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