Elderfield: Banking authority progress will ease bailout exit

Financial regulator Matthew Elderfield has said that progress made on the establishment of the European Banking Authority — the single supervisory body devised at June’s European Summit — should boost confidence in Ireland as it prepares to exit its bailout programme next year.

However, the deputy governor of the Central Bank added the tools are not yet in place to allow for an effective supervisor.

“To be a success, the new single supervisory mechanism of the banking union needs to have a well-considered relationship with the EBA and a strong commitment to the single market.

“It needs to have a best practice supervisory toolkit, effective and efficient decision-making procedures, a top-notch risk assessment framework and a robust, jointly-shared, supervisory culture,” Mr Elderfield said in a speech at the London offices of international news agency, Bloomberg, yesterday.

He warned that the right rules must be in placeregarding future capital injections and the winding down of failed banks to avoid governments having to inject more capital into the banks.

“It is a distinctly unpleasant situation to be asked to put out a fire, but to find your fire extinguisher is half full — and that the only way to get a reload is to increase debt and austerity,” he noted.

He also said the governance and voting arrangements for the EBA “clearly need to change” and will need to cater for the opinions of EU states not currently in the eurozone.

“Both the policy-making and mediation roles of the EBA raise what has become a key issue in the political negotiations on the banking union; namely the voting arrangements that will apply in the future. It is clear the concerns of the ‘out’ countries will need to be addressed.

“Another point of discussion relates to the scope of the ECB’s responsibilities, in terms of the number of banks it is responsible for and the speed with which its new mandate is implemented,” he said.

While a core group of important banks will be subject to direct ECB supervision, Mr Elderfield said the question of inclusion of smaller banks and those from “programme” countries merits “considerable debate”.