The legislation contains provisions that would give the European Parliament somewhat more oversight of a supervisory body, operating under the aegis of the central bank, when the body assumes its new authority. The vote is an important development, but not the final one, in a winding process that began in early 2012, during one of the most fevered periods in the euro zone financial crisis.
To take effect, the measure still needs approval from European Union governments, though that is expected to be a formality. The Single Supervisory Mechanism, the body it creates, is expected to start work during the autumn of 2014 after the European Central Bank conducts a “stress test” on the lenders coming within its purview.
The idea is that the central bank would do a better job than national supervisors of nipping financial problems in the bud so that governments would not need to resort to bank bailouts that destabilize the euro and penalize taxpayers. Once up and running, the new supervisory authority will have a range of powers to intervene when it detects problems, including the ability to conduct inspections that could lead to sanctions on banks or their managers.
The measure is the first step toward a broader, Europewide vision of banking. The next stage of that effort, creation of a single system for shutting or restructuring banks, is under way. But progress has been slowed by the reluctance of Germany to commit to a banking union that could lead to euro zone nations’ being responsible for one another’s debts.
Even so, the approval on Thursday was among the “most important votes of this parliamentary term,” Michel Barnier, the European Union commissioner overseeing financial services, told lawmakers after the vote. The law, he said, will help to “improve and restore confidence our citizens have in our system, as well as the confidence of the rest of the world in our system.”
Mario Draghi, president of the European Central Bank, issued a statement hailing the vote as “a real step forward in setting up a banking union, which is a core element of a genuine economic and monetary union.”
Lawmakers had delayed the vote, originally scheduled for Tuesday, reflecting demands for more power to oversee the central bank.
The approval came only after the president of the European Parliament, Martin Schulz, told members that Mr. Draghi had agreed to “strong parliamentary oversight” resulting in “a high degree of accountability.”
Under the agreement, the central bank agreed to share detailed records of meetings of the supervisory body with the Parliament, but the bank would not be required to provide copies of the minutes of the body’s meetings.
The European Parliament also would share power with European Union member governments over selection of the head and the deputy head of the supervisory board. And the Parliament’s influential Economic and Monetary Affairs Committee would have the right to summon the supervisory board’s head for hearings. But the Parliament would not have the power to veto actions taken by the supervisory authority or by the central bank’s governing council.
The demands by the Parliament, the legislature of the European Union, were signs of its growing assertiveness.
In his statement, Mr. Draghi said: “We will do our utmost to put in place all organizational requirements, with the aim of assuming our supervisory responsibilities one year after the legislation enters into force, and look forward to working with national authorities to contribute to the restoration of confidence in the banking sector.”
The new Single Supervisory Mechanism will be compulsory for the largest banks operating in the euro area. European Union countries that are not part of the currency bloc can opt to put their banks under the system. Banks with headquarters outside the European Union but with subsidiaries there, like some big American lenders, could see some of their subsidiaries come under the purview of the single supervisory authority.
The lawmakers, meeting in Strasbourg, France, voted 559 to 62, with 19 abstentions, to put the single supervisory body under the aegis of the central bank.
Originally, France and the European Commission called for all 6,000 euro area banks to be directly overseen by the new supervisory structure. But Germany successfully resisted that plan, arguing that supervising so many banks would make the central bank’s job unmanageable. The government in Berlin faced intense pressure from a powerful domestic banking lobby trying to shield many small savings banks from closer scrutiny.
Germany nonetheless agreed to let the European Central Bank, at its discretion, step in and take over supervision of any euro zone bank.
In most cases, only banks holding assets worth 30 billion euros, or $40 billion, or those holding assets greater than 20 percent of their country’s gross domestic product would be directly regulated by the European Central Bank. Central bank officials say that means in practice that about 130 banks, representing about 85 percent of bank assets in the euro zone, would fall under the direct oversight of the new supervisory authority under a formula agreed to by finance ministers last December.
Separately, a senior European Union court official said in an opinion on Thursday that one of the rules devised by European Union officials to stem the euro crisis should be rolled back.
The official, Niilo Jaaskinen, an advocate-general at the European Court of Justice in Luxembourg, said the agency that oversees the European Union’s financial markets should not be allowed to ban short-selling in any member state. The British government had challenged the rules, saying they went beyond the jurisdiction of the agency, the European Securities and Markets Authority, based in Paris.
Opinions handed down by advocates-general are not binding on judges. But judges follow the advice in a majority of cases when they make a definitive ruling months later.
Article source: http://www.nytimes.com/2013/09/13/business/global/european-lawmakers-expand-power-of-central-bank.html?partner=rss&emc=rss