The European Central Bank should have power to police, penalise and even close banks across the euro zone, the European Commission will say next week when it fleshes out plans for a banking union to tackle the region's debt crisis.
The move is part of wider efforts to prevent problem banks, such as Spain's Bankia, from sucking weak euro zone countries deeper into the crisis as they borrow to finance bailouts and is a step towards the economic integration needed to secure the single currency's future.
Commission President Jose Manuel Barroso will on Wednesday set out proposals for the ECB to supervise the euro zone's 6,000 banks, putting it at the head of the current fragmented system of national regulators and reducing their role. The ECB could get power to closely monitor banks' liquidity and impose higher requirements on banks to hoard capital, according to a draft proposal, which was published on the internet by the Italian newspaper Il Sole 24 Ore on Friday.The Commission hopes that tighter surveillance of banks by the ECB, followed by the creation of a fund to wind up troubled lenders and a common pan-European guarantee for depositors, can restore confidence in the region after five years of financial crisis.
"Banking union is one of the issues that can demonstrate that the euro zone is getting its act together," said Ken Wattret, an economist at BNP Paribas. A banking union will require countries to surrender a degree of sovereignty over their lenders, a prospect politicians inseveral countries are suspicious of.
Britain has decided not to join although many international banks in London with operations in the euro zone will nonetheless be affected by the ECB's new supervisory reach. The ECB would be able to shut a struggling bank, if euro zone states agree to the sweeping new powers.
In the draft document, officials write: "The ECB should ... have the task to authorise credit institutions and should be responsible for the withdrawal of authorisations." National authorities would also have to be involved. Germany, the euro zone's economic heavyweight, is opposed to allowing the ECB supervise all euro zone lenders. Berlin claims the central bank will be overstretched if it has to monitor all 6,000 euro zone banks.