The European Central Bank is considering an increased supervisory role in Europe''s financial sector, ECB President Jean-Claude Trichet said on Friday. He said the Frankfurt-based ECB was looking at taking a bigger hand supervision and could act as an authority of last resort in cases where there was no agreement between existing supervisory bodies.
"There are a number of meditations and reflection now which are taking place... and of course looking at the treaty which created the ECB, there is an article, 105.6, which clears the way for possible future responsibility for the ECB in this respect," Trichet said at a conference on globalisation.
"I would say at this stage we are reflecting, meditating. We will see at the level of the governing council whether we could be useful in this domain. I trust it might be possible." He said that if governments were in agreement, there would be no need for new ratification.
In the wake of the financial crisis a number of top ECB officials, including the bank''s Vice President Lucas Papademos, and fellow Executive Board member Lorenzo Bini Smaghi have said the central bank could take on an a more significant supervisory role.However, the proposals have been met with caution by some senior European decision makers and analysts say deeply entrenched national interests may hinder the plans, while Britain would also have to sign up to give the new powers any real clout.
"It''s a such a sensitive political question. It is unlikely the national central banks would be willing to hand over such a big part of their own roles over to the ECB," said Nomura analyst Laurent Bilke. "They would argue that they have the in depth knowledge of the banks in their local markets." he said adding that the ECB was more likely to take a more hands on approach to co-ordination of supervision.
Citi economist Juergen Michels agreed. "Will the ECB take a co-ordination role, probably yes," he said. "I think also that the ECB is keen on taking over that role because in the end, they are the ones that have to deal with the failure of supervision and they are now feeling the cost of that quite significantly."
CENTRAL AUTHORITY: Responsibilities for bank supervision in Europe currently vary. In some countries, it is the job of the national central bank while others have established separate bodies for the role. Trichet added that in a decentralised system, the ECB could act as an agency of final recourse.
"The authority would be a sort of central European authority of appeal when there was no consensus between the different bodies," Trichet said. He said the real difficulty comes in financial crises when taxpayers are called on to bailout insolvent banks. "There is no European taxpayer that we can mobilise. That is the real issue that we see during crises." "We have a single market but when there is a serious crisis we have to mobilise all at once the taxpayers in different countries and... they do not necessarily have the same vision."
Europe is littered with a mixed of banking supervisory bodies many of which have very limited or no actual power to enforce changes. Michels said that the ECB was the obvious choice to oversee the job. "I think it would be the easier and quickest way to use the existing knowledge and manpower at the ECB and not to create yet another bank supervision institution."
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