EU will review barriers to one-stop bank supervision
Charlie McCreevy, the EU commissioner for internal markets, has indicated to European bankers that his staff will work over the coming five years to remove barriers to the consolidated supervision of banks.
This commitment is disclosed in a letter sent to commissioner McCreevy by Guido Ravoet, secretary general of the European Banking Federation (FBE) in late January.
The federation has been among the most forceful in pressing the case for consolidated supervision, under which a banking group with subsidiaries in several of the EU's 25-member countries would be subject to a single or lead supervisor, usually in the home country where the group is headquartered. Banks are concerned that otherwise they will have to deal with the different demands of multiple supervisors.
The Capital Requirements Directive, which transposes the new Basel capital accord into EU law, does make some concession to the banks on this point. Under this directive, which will regulate bank capital, a single, lead supervisor is empowered to undertake the validation of bank capital models if no common approach among interested supervisors has been agreed after six months. Banks say this does not go far enough.
On the other hand, supervisors in countries that are host to a banking group's operations are worried that their sovereignty will be diminished if banks get their way. There are also a number of practical obstacles against the kind of centralised supervision wanted by the banks, such as which country's taxpayers pick up the bill in the event that some part of banking group becomes insolvent.
Recognising these practical difficulties, the FBE is no longer pressing for further extensive concessions in the Capital Requirements Directive (CRD) over this issue. Instead, it wants a commitment, in writing, that the European Commission in Brussels will review all aspects of the matter
Not public
The letter to Commissioner McCreevy indicates that the FBE has been told privately that this will now happen, although there has been no public announcement. "The FBE understands that the Commission intends to work on this objective over the next 5 years as part of the post-FSAP [Financial Services Action Plan] agenda by harmonising inter alia deposit guarantee schemes, liquidity management and lender of last resort at EU level," the letter says. "The FBE welcomes this forward agenda," the letter continues, "in the context of an overall review of a coherent framework for banking supervision in Europe. We urge the Commission to make its work plan public by mid-February at the latest and to set a specific timeframe for the work. These objectives should also be explicitly referred to in the CRD."
A spokesman for McCreevy said a reply to the letter was about to be sent as Global Risk Regulator went to press. The spokesman acknowledged that the FBE's understanding of the Commissioner's intentions was accurate. But said that the precise details were still under consideration.
For its part, the FBE appears to have adopted a more pragmatic approach to the issue of consolidated supervision. "Our position has evolved over the last month. Previously, consolidated supervision was what we wanted to achieve from the CRD. It is still our ultimate objective, but the banking sector accepts that there are legal impediments to achieving that right now," says Caitriona O'Kelly, who advises the FBE on banking supervision.
First, prudential supervision is entirely fragmented, and secondly all the safety nets, such as deposit guarantee schemes and lender of last resort facilities, operate at a national level," she says. "So, we are saying to the Commission that it should review the situation in five years time. By then the legal impediments should have been removed, and the rules should be applied at a consolidated level."
The letter from FBE secretary general Ravoet says "it is a paradox that the European Union, with a clear objective of a unified financial market, should choose a fragmented approach to banking supervision, burdening banks with multiple reporting requirements and additional capital constraints."
