EU's Barnier seeks compromise with Germany on banks

BERLIN Thu Sep 20, 2012 10:40am EDT

European Commissioner for Internal Market and Services Michel Barnier addresses journalists during a press briefing at the European Parliament in Strasbourg, September 12, 2012. REUTERS/Vincent Kessler

European Commissioner for Internal Market and Services Michel Barnier addresses journalists during a press briefing at the European Parliament in Strasbourg, September 12, 2012.

Credit: Reuters/Vincent Kessler

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BERLIN (Reuters) - European Commissioner Michel Barnier is seeking a compromise with Germany on banking union plans that would allow local regulators to carry on supervising banks but under common euro zone guidelines.

Barnier, who is at odds with Germany over his proposal to give the European Central Bank (ECB) powers to oversee all euro zone banks, told reporters in the German capital on Thursday: "Of course I will work on a compromise with Berlin and other European capitals."

However, Barnier's attempts to soothe Germany stop short of scaling back the ECB's remit.

Giving the ECB a bigger role is part of the euro zone's efforts to provide a long-term fix for its sovereign debt crisis, which has been complicated by the bad debts weighing on many of the bloc's banks.

Banks have had to be shored up using European Union funding in countries including Spain and Ireland, and Barnier, the bloc's financial services chief, emphasized the need for a more integrated system to rebuild financial stability.

Chancellor Angela Merkel's government wants the ECB's new powers of oversight to apply only to systemically-relevant or cross-border institutions - a position that got clear backing from lawmakers in her center-right coalition this week.

But Barnier said banks that had run into difficulty since the global financial crisis had tended to be small and medium-sized institutions, such as Spain's Bankia, Franco-Belgian Dexia and Britain's Northern Rock, rather than cross-border institutions whose problems had much wider repercussions.

"That's why, after many consultations, we suggested that it should be possible (for the ECB) to supervise all banks but this will of course functionally be carried out by national supervisors," he said.

"(German bank supervisor) BaFin will maintain its role but there will be a kind of manual for all banks which come under the control of the European supervisor. National authorities will of course be the ones who put the contents of this manual into practice."

The commission wants EU leaders to approve the ECB's new role at their summit in December when unanimity is needed.

Barnier, visiting Berlin to meet politicians and business groups, said national supervisors would continue to be responsible for protecting consumers and taking measures against money laundering.

WORRIES ABOUT SPAIN

The Association of German Banks, representing major lenders like Deutsche Bank and Commerzbank, parts company with some German policymakers in wanting the ECB to have power over all euro zone banks.

"One of the decisive lessons we learnt from the financial crisis was that ... for all market participants the same supervisory rules hold good and must be uniformly applied," it said in a statement.

"Supervision needs to be decoupled from national interests," it added, saying this did not mean ECB employees would need to inspect every institution because the plan allows the ECB to fall back on national oversight bodies.

Earlier this week Merkel warned against rushing to create a new pan-European supervisor under the ECB, saying it was more important to put a credible watchdog in place than to meet Europe's self-imposed January deadline.

Barnier said Merkel had raised important points but added: "It is a question of credibility to deliver quickly what we promised."

He said he did not want a new EU-wide deposit guarantee fund but rather for EU states to set up their own deposit guarantee funds, which could then borrow money if necessary.

In Germany, private banks, savings banks and cooperatives have all developed their own systems to protect clients' money.

Georg Fahrenschon, head of the German Savings Banks Association, said Barnier's proposal was really motivated by the need to rescue Spanish banks: "Spain is doing everything it can to avoid having to take a bailout from the ESM (European Stability Mechanism) itself."

In June euro zone leaders agreed that the ESM, the euro zone's permanent bailout fund, will be able to directly recapitalize banks once the ECB takes on the role of a euro zone-wide bank supervisor.

Germany's Cooperative Bank Association signaled it does not want the ECB to oversee banks that operate only on a national level, even if it delegates supervision to national authorities.

(Additional reporting by Phillip Halstrick and Alexander Huebner; Editing by Ruth Pitchford)

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