LONDON, June 13 (Global Risk Regulator) – New proposals for more integrated European bank supervision and region-wide bank deposit guarantees may be launched by the autumn it was confirmed today as some US regulators worried that the international Basel III bank safety rules won’t be tough enough.
José Manuel Barroso, who as European Commission president heads the Brussels-based executive arm of the European Union, told the European Parliament today that the creation of an EU banking union is “a natural priority”.
In an interview with the UK Financial Times newspaper published yesterday Barroso said all 27 EU member states should submit their big banks to a single cross-border supervisor as part of a banking union to be enacted as soon as next year.
Today Barros said it was “indispensable” that the euro zone, beset by sovereign debt and banking crises, deepened its economic integration. But he warned that this shouldn’t lead to a breakdown of the EU’s single market for products and services and a permanent split among the bloc’s 27 member states.
“By autumn, the commission could be ready to come with key proposals to introduce more integrated banking supervision and common deposit guarantees and resolution funds,” Barroso said in a speech to parliament which is meeting in Strasbourg, France.
Earlier this month, the Commission took a step towards the banking union urged by the European Central Bank (ECB), when it issued proposals for far-reaching powers for regulators to take control of failing banks.
The idea of closer banking ties gained traction this month when ECB president Mario Draghi championed the idea in testimony to the parliament. Draghi's three-pillar plan for banking union consists of central monitoring of banks, a fund to wind down big lenders and a pan-European deposit guarantee.
Barroso said today it was “essential to proceed...with all member states,” and he acknowledged deeper fiscal and banking integration would likely require changes to the EU’s basic treaties. Treaty changes would trigger a referendum in the UK, for example, to establish whether the public approves.
In a nod to growing concerns in the UK about a more comprehensive euro-zone banking union, Barroso said that “opt-outs” the UK and other member states have from certain EU rules “must be taken into account.”
European Council (of EU member states) president Herman Van Rompuy will present a report to EU leaders at their summit later in June setting out ideas for greater fiscal and banking integration.
Barroso also said members of the Group of 20 (G20) biggest economies would likely point “a finger at” Europe “as the source of the world’s problems, including their own,” at the G20 leaders’ summit in Los Cabos, Mexico, next week.
Meanwhile in Washington, the newest members of the Federal Deposit Insurance Corp (FDIC), one of America’s key federal banking supervision agencies, raised concerns yesterday that the forthcoming Basel III international bank capital standards might not be tough enough.
At a meeting of the FDIC, which insures customer deposits at America’s banks, board members Thomas Hoenig and Jeremiah Norton questioned the complexity of the new rules and whether the minimum requirements go far enough.
Earlier this week the Basel Committee of global banking supervisors, the architect of Basel III, said in a report to the G20 that the Basel III rules could be weaker in the US, the European Union and Japan than the globally-agreed standards in some areas.
The US is among seven Basel Committee member countries that have yet to issue draft regulations implementing Basel III which is intended to come into effect over a six-year period starting in January 2013.
“I remain concerned that as proposed, the minimum capital ratios will not significantly enhance financial stability,” said Hoenig, who joined the FDIC board in April after retiring as president of the Federal Reserve Bank of Kansas City.
“The rules continue to focus on risk-based capital ratios, which strike me as overly complex and opaque,” Hoenig said.
The Basel III capital agreement is the cornerstone of efforts by international regulators following the 2007-2009 financial crisis to make sure the global banking system is more resilient.
Despite their reservations, both Hoenig and Norton joined their three colleagues on the FDIC board in voting to put out for comment until September 7 a US proposal for implementing the Basel accord in the United States. The other federal banking supervisors, the US Federal Reserve and the Office of Comptroller of the Currency (which supervises America’s federally chartered banks), have already approved putting the rule out for comment.
A final rule is due by January.
(Barroso speech: http://ec.europa.eu; additional reporting: Reuters, Dow Jones)
David Keefe (dkeefe@globalriskregulator)