Adviser talks up benefits of European bank union

The benefits for the Irish economy and banking system from a European banking union will far outweigh any potential downsides, the former government adviser Alan Ahearne has argued.

“A national regulator would probably have the national interest at heart. But a single European supervisor would greatly outweigh any negatives that might arise,” Mr Ahearne said.

Details of how the banking supervision would be implemented and how closely the Irish banks will be scrutinised remains to be seen.

“But the banks are under intense scrutiny anyway — the banks have been under intense scrutiny by the troika since we entered the bailout programme,” Mr Ahearne said.

The Central Bank said it was too soon to respond to the EU banking union proposals.

However, in a speech given last month, the deputy governor of the Central Bank, Matthew Elderfield, said a “banking union also holds out the prospect of strengthening the framework for European banking supervision, if implemented successfully”.

He added: “Creating some distance between supervisors and the banks they regulate (and, indeed, from the political systems of the banks they regulate) can help improve the capacity for challenge and ensure a broader, more detached, perspective on problems.

“Bringing in a foreigner to do your supervision is not, alas, the magic solution to all the woes of a banking system. But the single supervisory mechanism holds open the prospect of an institutional framework, a broader skill set and more diversity of experience that should help insulate supervisors from the pressures — subtle and direct, cultural and political — that come from long-time and close proximity to their regulatory charges and their champions,” Mr Elderfield said.

Bank of Ireland and AIB both declined to comment about the possible implications of being supervised from Frankfurt.

A European banking union is seen as a necessary pre-condition for the survival of the single currency. However, in view of the amount of proposed banking legislation that would have to be introduced by national regulators, it is unlikely that a single supervisor will have a huge different, said a Dublin-based banker, who did not want to be named.

“Germany probably needed this figleaf of a single supervisor if it is going to guarantee bank losses in other countries.”

Another Dublin-based fund manager said an EU banking union is a positive step because it would remove much of the investment bank casino capitalism prevalent over the past couple of decades and which caused the financial crisis.

Stable capital markets leads to a much more stable economy, the fund manager added.

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