ECB mulls delegating power to ease oversight burden

Frankfurt

THE European Central Bank (ECB) is considering delegating more power to its supervisory arm to avoid monetary policy makers becoming entangled in low-level details, said people familiar with the matter.

Since assuming oversight of the euro area's largest lenders in November, ECB officials have come to the conclusion that the legal requirement for each decision to be seen by the 25-member Governing Council is not sustainable, the sources said, asking not to be named as the deliberations are not public. An ECB spokesman declined to comment.

The discussions highlight the Frankfurt-based institution's struggle to incorporate fresh responsibilities after 16 years of focusing on price stability. They may also provide ammunition to critics of the current set-up who want the Single Supervisory Mechanism (SSM) to be split off entirely.

The SSM expects to take around 6,000 decisions a year across 19 countries on topics including capital plans and approval of bank management - all of which must pass through the Governing Council.

One option being considered is "umbrella decisions" that can cover multiple cases, two of the sources said. Officials may make adjustments after a planned review of procedures due by the end of this year.

The ECB was given responsibility for banking supervision by European Union leaders in 2012, as the first pillar of a Banking Union to mitigate future financial crises. Under the leadership of France's Daniele Nouy, the SSM has aggressively pursued its mandate, scrutinising bank balance sheets in an unprecedented review last year and pushing for higher capital levels.

Even so, the watchdog's powers are effectively limited by the EU regulation written as the SSM was hastily constructed. That document must comply with Article 129 of the EU's basic treaty, which states that the decision-making bodies of the ECB are the Governing Council and the Executive Board.

It is unlikely that the ECB will seek to change the treaty or even amend the SSM regulation, two of the sources said. Instead, lawyers are examining how the rules can be adjusted to fit with existing laws, they said.

SSM officials are anxious to avoid conflicts with the monetary policy side of the ECB and have erred on the side of legal prudence with regard to the running of the institution, one of the sources said. The central bank nominally has a "strict separation" between supervisory and monetary-policy operations.

"Time will tell whether this structure truly helps avoid conflicts of interest between monetary policy and banking supervision, or whether it might have been better to create an independent banking supervisor," SSM and Bundesbank board member Andreas Dombret said on Monday.

"A situation may arise in which the Governing Council might be tempted, out of monetary-policy concerns, to alter decisions that the Supervisory Board proposed from a supervisory perspective."

Elke Koenig, former president of Germany's Bafin supervisor and now chair of Europe's new bank-resolution body, has backed the idea that more powers should be delegated to the lower levels of the organisation - including below Ms Nouy's SSM board. BLOOMBERG