EU watchdog to be strengthened in banking union: document

LONDON Sun Sep 9, 2012 9:46am EDT

LONDON (Reuters) - The European Union's banking watchdog will have new powers to overrule the European Central Bank when the bloc's single market is threatened, a document obtained by Reuters showed.

European Commission President Jose Manuel Barroso on Wednesday will present a blueprint for a euro zone banking union with the European Central Bank (ECB) as the main supervisor for the currency area's 6,000 banks.

It is part of wider EU efforts to tackle a destabilizing debt crisis that has weakened lenders.

The central bank will supplant the fledgling European Banking Authority (EBA), a pan-EU watchdog, in supervising euro zone lenders though the EBA will still write the single rulebook for all EU banks.

Big, cross-border banks worry the common approach to all lenders in the EU will be fragmented by a banking union based on the euro area.

Britain, the EU's biggest banking center, has refused to take part and, along with other "outs" wants safeguards to protect the single market.

In a document Barroso will unveil on Wednesday the ECB "will coordinate the position of euro area members of the EBA... in supervisory matters".

But to ensure that EBA decisions reflect the interest of the EU as a whole, its decision making system will be changed.

The 17 euro zone states would have an inbuilt majority under the current EBA simple majority voting system for dealing with rule breaches and taking action in emergency situations.

"EBA will have powers to act in cases the ECB does not intend to comply with an EBA decision," the document said.

The central bank would also have to "explain its reasons" if it won't comply with an action by the EBA to settle a disagreement or address an emergency situation.

"In that unlikely case... EBA can adopt an individual decision addressed to the financial institution concerned."

This would ensure "full enforceability" of EBA settlement of disagreement or action in an emergency situation.

For breaches of rules, a simple majority is currently used.

In future there would be a new "independent panel of highly qualified experts" whose rulings on breaches of EU banking rules could only be rejected by an EBA vote.

The panel and voting backstop "will ensure that euro area member states cannot have a blocking minority in case of actions taken against one of them".

Additionally, the EBA management board would be reformulated to have at least two members from countries not in the banking union.

The EBA will continue to adopt binding pan-EU rules for banks under the existing qualified majority procedure.

(Editing by Jason Neely)

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