March 29, 2024

Europe Inches Closer to Establishing a Banking Union

BERLIN — Europe inched closer Wednesday to establishing a European banking union for the Continent’s largest lenders after the cabinet of the German cabinet approved legislation that would grant to the European Central Bank oversight of such institutions.

The decision by the cabinet of Chancellor Angela Merkel came a day after Finance Minister Wolfgang Schäuble, indicated that he supported moving ahead with efforts to create a banking union, despite Germany’s official stance that the step would ultimately require changes to European treaties.

The legislation, which awaits action by the German Parliament, would grant the E.C.B. the authority to oversee the Continent’s largest lenders: those worth more than €30 billion, or $39.5 billion, or the three largest banks in each of the 17 European Union countries using the euro.

As part of efforts to help resolve the debt crisis in the euro zone, E.U. leaders agreed last year to establish a banking union with the aim of preventing overly indebted states from having to bail out failing banks.

While the German cabinet’s decision moves a banking union a step closer to becoming reality, it does not resolve arguments over how to unwind failing banks, one of the problems a banking union would address.

Jörg Asmussen, a member of the E.C.B.’s Governing Council, emphasized in comments Wednesday in Brussels that Europe needed a strong authority capable of making quick and impartial decisions on winding up banks.

“Only then we will be able to break the negative interaction between sovereigns and their banking systems,” Mr. Asmussen told a European Parliament committee, Reuters reported.

But the question of how to regulate banks under a banking union has been politically contentious as the European debt crisis continues.

German officials, in particular, have been viewed as dragging their feet in arguing that establishing a sound, lasting bank supervision authority was more important than speed. Mr. Schäuble has said that creating a mechanism would require changes to E.U. treaties, a process that could slow the effort considerably.

Martin Kotthaus, a spokesman for Mr. Schäuble, said Wednesday: “For a new central authority, we would need treaty change because there is no enabling power for such an authority. It must be completely watertight.”

Article source: http://www.nytimes.com/2013/05/09/business/global/09iht-germanbank09.html?partner=rss&emc=rss