Europe signs off on common bank oversight


Christine Lagarde, managing director of the International Monetary Fund (IMF), left, speaks with Mario Draghi, president of the European Central Bank (ECB), during a financial conference at the Ministry of Economy, Finance and Industry in Paris, France, on Friday, Nov. 30, 2012. (Balint Porneczi/BLOOMBERG)
December 13, 2012

European leaders Thursday approved joint regulation of the region’s major banks, an important step in resolving the euro zone’s three-year financial crisis.

Finance ministers agreed that the European Central Bank would assume authority over perhaps 180 banks accounting for more than 90 percent of the assets within the 17-nation euro zone, and in other European Union nations that choose to participate.

Creation of that “single supervisory mechanism” is, over time, intended to clear the way for the next stage in rebuilding Europe’s financial system: the establishment of a full-fledged banking union in which participating nations would share the costs of things such as deposit insurance and major bank failures.

Europe’s financial crisis has been driven in part by the inability of countries such as Ireland and Spain to handle those costs on their own. Creating a single supervisor with common rules is a way to reassure wealthier nations, such as Germany, that local regulators would not loosen oversight in response to domestic political or economic concerns.

ECB supervision of euro-zone banks is also part of a plan to allow Europe’s bailout fund to inject capital directly into troubled banks, rather than making loans to governments — a procedure potentially needed to rehabilitate Spain’s banking sector without increasing the government’s debt.

Thursday’s decision, to be ratified by heads of state in a summit, must also be approved by the European Parliament. It is to take effect in 2014. Britain, which is not part of the euro currency union, is expected to maintain its own regulatory system for what is Europe’s largest financial sector.

European officials said in a news release that the decision marks a major step forward in euro-zone cooperation and in undoing some of the dynamics that pushed the currency union toward collapse.

The meeting in Brussels also approved payments under Greece’s latest bailout, after Athens successfully completed a bond buyback in which it wiped approximately $24 billion of debt off its books by repurchasing outstanding bonds at a discount.

Early Friday, E.U. leaders called for the creation of a body with the authority to restructure or close down banks in trouble, as well as setting up a continent-wide deposit guarantee system, news services reported.

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