The European parliament has voted in favor of centralized oversight for Europe’s largest banks. The supervisory authority is to begin operations late next year.
European lawmakers in Strasbourg have voted with a large majority to allow the European Central Bank (ECB) in Frankfurt to become a centralized supervisory authority with oversight over major eurozone banks. The move is to take effect in the second half of 2014.
The so-called single supervisory mechanism is the first of three steps towards the bloc’s planned banking union, which is a key policy for resolving the 17-nation eurozone’s three-year-old debt crisis.
The bank supervision authority aims to put European institutions in charge of overseeing and rescuing banks rather than leaving this up to weaker member states. The goal is to prevent failing banks from dragging down government finances and forcing the affected EU countries to seek bailouts, as has happened in the cases of Cyprus and Ireland.
The authority will oversee the 150 largest eurozone banks. EU nations that do not use the euro currency, such as Britain or Poland, can choose to join later.
The vote had been postponed because of differences about the accountability of the ECB to the European parliament. The differences were resolved in talks between EU Parliament President Martin Schulz and ECB head Mario Draghi, with a deal signed on Tuesday granting the parliament the right to see summaries of the minutes of the new supervisory authority’s meetings.
The other two pillars of the proposed banking union – setting up a joint deposit guarantee and an authority to restructure or wind down banks complete with a common financial backstop – are still far from being agreed upon. Among other things, creditor countries such as Germany are reluctant to agree on a joint backstop, fearing they will end up footing the bill.
Ahead of Thursday’s vote, European Parliament President Martin Schulz praised the idea of a centralized supervision authority.
“It’s a supervision of the ECB without in any way undermining the ECB’s independence” or endangering a level of banking secrecy require “to protect the markets from unnecessary shocks,” Schulz said.
tj/ch (AP, Reuters, dpa)