ECB to directly monitor Irish banks in 2014

Ireland’s banks will besupervised directly from Frankfurt by the ECB from next March following agreement on how the first plank of a banking union would operate and paving the way towards EU direct bank recapitalisation.

Irish officials helped broker the deal between the member states, the European Commission and the European Parliament in what is a record for EU legislation of less than nine months from request to agreement.

Welcoming the agreement, Michael Noonan, the finance minister said, “the Single Supervisor is the core element of banking union and a vital step in breaking the vicious link between the banks and the sovereigns. Restoring confidence in the supervision of European banks couldn’t be more important in bringing stability to Europe”.

The ECB will have overall responsibility for all 6,000 euro area banks and will work with national supervisors for the day to day issues.

The ECB will directly supervise banks with assets of more than €30bn or constituting at least 20% of their home country’s GDP and those that have received EU rescue funding.

National supervisors will be monitored by the ECB who may decide to take over supervision of any of their credit institutions; they can send them instructions and must report to the ECB of any important decisions.

There will be a separate supervisory board within the ECB and will have a mediation panel to solve any disagreements with national authorities and the ECB governing council but there will be a clear separation between the ECB’s monetary and supervisory roles.

The European Parliament secured a greater say in who is the chair and vice-chair of the supervisory board and to have them removed for inappropriate behaviour. National parliaments will also have a stronger role.

On transparency, the ECB supervision will have to give public access to documents under normal EU legislation while in trying to tackle the “revolving door” issue, the ECB will have to have rules to prevent conflicts of interest and up to two years before a member can take a job in the normal business community.

The European Banking Agency has also been given a greater role with more powers to undertake stress tests and obtain information.

The Single Supervisory Management (SSM) will be open to banks outside the eurozone if they choose to join with the newly strengthened EBA representing them.

The SSM will ensure people will be working for the European interest rather than national interests, said MEP Marianne Thyssen of the centre right EPP group.

Internal Market Commissioner Michel Barnier responsible for the original text said that the eurozone was just now exposed to difficulties which strengthened his determination to reform the governance of banks.

“If banking union were already in place and functioning today, the management of these difficulties would be considerably easier.”

The agreement will have to be endorsed by all member states and by a full sitting of the Parliament while details such as the ECB’s rules on conflict of interest will have to be finalised.

The next steps towards banking union is the adoption of a directive on banking resolution which will lay out rules on reforming or folding troubled banks, and the deposit guarantee schemes.