‘ECB control of banking could hurt Irish system’

The decision to hand responsibility to the ECB for the supervision of the eurozone’s 6,000 banks could have damaging implications for the Irish banking system, according to University of Limerick economics lecturer Stephen Kinsella.

He said the move could increase the costs of regulation and could lead to dangerous oversights across the region.

European leaders agreed to move towards a banking union at the Jun 29 EU summit in an effort to resolve the debt crisis sweeping the region. A key part of the negotiations since the summit is which body would assume responsibility for the banking system. The German government, in particular, insisted that responsibility for the supervision of the banks would have to be located in one centralised agency before agreeing to any of the other proposals that came out of the Jun 29 summit. The most important of these is that funds from the European Stability Mechanism (ESM) would be used in future to recapitalise struggling banks, which is aimed at breaking the ‘deadly embrace’ between the banking system and sovereign.