Bundesbank hits out at ECB's banking supervisory role

14th December 2012, Comments 0 comments

The head of the German central bank or Bundesbank, Jens Weidmann, hit out Friday at the decision by EU leaders this week to make the European Central Bank Europe's new banking supervisor.

"I'm not convinced that the ECB governing council is the best body to decide whether a bank should be shut down or not," Weidmann said in a pre-release of an interview to appear in the weekly WirtschaftsWoche on Monday.

Under a complex deal hammered out following marathon talks this week, EU finance ministers agreed on the creation of a common supervisory authority in a key step towards a banking union which EU leaders hope will ring-fence banks in trouble to prevent future crises.

It will allow eurozone banks to be recapitalised directly, rather than through governments, so as to avoid adding to their growing debt burden.

The ECB is to manage the supervisory system in tandem with the London-based European Banking Authority, which covers all 27 EU states, and national supervisors.

From March 2014, the biggest 150-200 banks with assets worth more than 30 billion euros ($39 billion) or equal to 20 percent of a state's economic output will come under the ECB's remit.

But Weidmann argued that "for practical reasons, the number of banks deemed as systemically relevant (and therefore overseen by the ECB) should have been smaller."

And the dividing line between monetary policy and banking supervision must be much more clearly defined, so as to avoid any possible conflicts of interest, he said.

At best, the decision to place banking supervision under the ECB's aegis should be temporary, Weidmann insisted.

"The ECB can adopt a midwife's role, but in the long term, the supervisory authority must be separated from the central bank," he argued.

© 2012 AFP

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