* Reservations of Germany, others on ECB role in supervision
* Four countries want to bolster national watchdogs
* Timing of scheme in doubt, legal concerns flagged
By John O'Donnell
BRUSSELS, Nov 7 A group of AAA-rated euro zone
states, led by Germany, wants limits on the ECB's remit in a
proposed banking union, possibly undermining a scheme to restore
the currency zone's stability.
According to a document circulated by Germany, Finland, the
Netherlands and Luxembourg, and seen by Reuters, the four core
euro zone countries advocate stronger powers for local
regulators when it comes to day-to-day oversight of banks in the
banking union scheme.
They worry the banking union as proposed could see their
role eclipsed by that of the European Central Bank.
EU leaders meet in December to formally vote on making the
Frankfurt-based central bank the core of a euro zone banking
union but the document obtained by Reuters casts doubt on
whether the plan will go ahead from next year.
The four countries spell out the options for deciding when
national watchdogs rather than the ECB should take the lead in
"The text suggests bringing back more control to the member
states," said one EU official. "The ECB will have the final say,
but the question is whether it is exercised directly by the ECB
or on behalf of the ECB by national authorities."
The reform is part of efforts to bolster the euro currency.
Establishing a new mechanism to supervise banks will pave the
way for the euro zone's rescue fund, the European Stability
Mechanism, to directly assist banks rather than having to do so
through the governments of their home countries.
The document highlighted another obstacle, namely the
concerns of Germany and Finland that there is insufficient legal
separation between the ECB's role in deciding monetary policy
and supervising banks.
One official said there were also concerns that the more
banks included in the scheme, the higher the potential cost if,
as is ultimately planned, the banking union is backed up by a
central fund to pay for the closure of troubled banks.
They also suggest strengthening the role of a supervisory
board within the ECB, a body that would play a role in
supervising lenders and where non-euro zone members would have a
"One of the main points is the full delegation of powers to
the supervisory board," said a second official. "They want the
board to take final decisions, rather than just prepare
"Germany and Finland are not convinced that the necessary
separation of decision-making can be achieved without recourse
to another legal basis," officials write in the document.
The paper, which is based on earlier drafts of legislation
for the supervision scheme, also deleted references to the
latest starting date of Jan. 1, 2014 for the supervisory
mechanism, a signal that with so many issues unresolved striking
a deal may take longer than planned.
It also revised an earlier draft which some had interpreted
as meaning that the ECB's supervision would be limited to banks
that accounted for half of their country's banking assets. The
quartet says different criteria, including a bank's systemic
risk, exposure and cross-border activity, could be taken into
The banking union would have three steps: the ECB takes over
monitoring euro zone banks and others that sign up; a single
fund is created to close down and settle the debts of failed
banks and finally a scheme to protect savers' deposits is
The close ties between some troubled governments and the
banks they supervise, and on which they also rely to buy their
debt, have dragged both ever deeper into crisis.
A banking union, if completed, would break this link by
making the policing of banks supranational and establishing
central schemes paid into collectively to cover the costs of
closing failed lenders and shielding savers.
(Additional reporting by Claire Davenport; Editing by Ruth