–Updates Story From 14:16 GMT With More Comments On Vote Share

FRANKFURT (MNI) – Country voting shares on questions of bank
supervision under the European Central Bank will depend on who is liable
for resolving banks under the central bank’s remit, ECB Executive Board
member Peter Praet said Monday.

Speaking on a panel during Euro Finance Week in Frankfurt, Praet
said whether or not there was a mutualization of risk would affect how
much influence each country had over supervision under the ECB.

Praet did not say whether or how much money banks themselves should
be asked to contribute to a resolution fund under the ECB, or how much
national supervisors would still be liable for the costs, but he said it
was critical that this issue be clarified.

“For me it is a big issue when you discuss about voting …to see
at the end of the day, when things go wrong, whose taxpayer money we are
talking about,” Praet said. “If you have a mutualization of risk, then
it will be different in terms of voting.”

ECB Governing Council member Jens Weidmann, who also heads the
Bundesbank, earlier Monday said voting rights on bank supervision issues
should be based on the capital shares of ECB members, given that
taxpayers from larger countries would take on more of the risk.

Speaking to reporters after the panel, Praet said he agreed with
Weidmann to a point, but said the issue was “not so simple.” If there
was indeed a full mutualization of risk through the resolution fund,
than there would have to be “more” voting power for larger countries,
but he stressed that the degree of mutualization was not yet resolved.

Praet said that any weighted voting on bank supervision decisions
could be based on the size of a financial system, rather than the
capital shares of ECB members. It would also have to take into account
just how much systemic risk stems from each country’s banking system.

Praet reiterated there must be a clear separation between the
central bank’s monetary policy role and bank supervision. He
acknowledged that the legal basis for how decisions are taken under the
ECB still had to be “clarified,” along with a series of other
technical questions, before the ECB could take on its new role.

Given the outstanding issues, Praet said it would be “extremely
challenging” for the ECB to take up its new supervisory role, even
suggesting this could be pushed into 2014. Asked after the speech, he
said only that this issue would have to be resolved by governments.

More generally, Praet said placing bank supervision under a central
bank could help it better understand the monetary transmission mechanism
as well as the condition of banks under its control. This could help
with a central bank’s exit from non-standard policy measures as banks
must be in good condition before an exit can take place, Praet said.

Praet stressed it would be “extremely dangerous” for bank
resolution to remain purely at the national level even as the ECB takes
on responsibility for supervision. As a result, it was “very important
that the single supervisory authority would have as a counterpart a
resolution authority … backed by some European funds.”

By contrast, Praet acknowledged that the issue of common deposit
guarantees was “no longer a key question,” something that Weidmann
earlier Monday had welcomed.

Praet rejected the idea that concerns about the ECB’s new bank
supervisory role could scupper the project, arguing that the system
was currently in disiqulibrium.

“If we don’t improve the way supervision is being done, you’re
going to have a continuation of these fragmentation dynamics that you
see today,” Praet said, also warning of a further retrenching of banking
systems.

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

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