* ECB targets zombie banks on artificial life-support
* Some at ECB want EU antitrust chief Almunia as axeman
* ECB set to take on bank supervision from next year
By John O'Donnell and Paul Carrel
BRUSSELS/FRANKFURT, Nov 28 The European Central
Bank has proposed that the EU's powerful antitrust chief be
given a permanent role for shutting down weak banks that survive
largely on central bank funding, officials familiar with the
In the absence of a pan-European scheme for winding up
struggling lenders, the task of cleaning up the sector has
fallen by default to Joaquin Almunia, the European commissioner
for competition issues, who ordered a restructuring of Spanish
banks on Wednesday and wants similar moves in Greece.
Now, some officials at the ECB are examining how Almunia's
job could be enhanced to give him a permanent and more powerful
role in winding up banks. That could widen his remit beyond
banks receiving state aid to those deemed too weak to survive.
Setting up an agency with the power to close down troubled
banks that are being artificially kept alive by ECB loans is one
part of a multi-step plan to establish a 'banking union' across
the euro zone and the wider EU to restore confidence in an
industry struggling after years of runaway lending.
Other elements include creating a single supervisor to
oversee European banks, a job that is set to fall to the ECB,
and the possible creation of a unified deposit guarantee scheme.
The problem of so-called zombie banks - which are propped up
by support from governments and central banks but which have
little prospect of lending to the economy again - is one of the
first challenges the new watchdog will face.
It is also one of the chief concerns of ECB officials, who
believe that the number of banks in the region needs to be
shrunk in line with a rapid contraction in lending after years
of cheap finance.
There are no reliable estimates on the number of endangered
banks in Europe. Almunia has so far demanded the restructuring
of about 50 banks since the beginning of the financial crisis
and has ordered the closure of some including Germany's WestLB.
The clean-up is not something the ECB, as supervisor, can do
itself, not least because it would bring it into conflict with
governments which typically foot the bill for bank closures.
It needs an "executioner" to enforce such wind-ups and some
at the central bank believe that could be the European
Commission, the EU's powerful regulator and the only institution
that already has the clout to shut down lenders.
BANKS FOR THE CHOP?
"They have a financial stability mandate," said one person
familiar with the ECB's thinking. "Under competition law, they
have power. You can work on a plan where the Commission's
Directorate General for Competition has resolution (powers)".
Such a move may first require a change to EU law to
reinforce Almunia's position, the official said.
"You must be serious about how you do it - you cannot confer
the responsibility on a shaky legal basis," said the person. The
ECB declined to comment.
Formally handing the Spanish commissioner permanent and
sweeping executive powers would offer a quick and convenient way
of building another pillar of the banking union, itself an
important step towards strengthening the euro zone's economic
Earlier this week, ECB Vice-President Vitor Constancio
underscored the need to create a European resolution authority.
"Supervision is only one leg of a genuine financial union,"
he told an audience in Berlin.
"It also requires an effective tool to deal with bank
failures without triggering financial instability, without long
squabbles about burden-sharing, and without dragging sovereigns
into a deadly embrace with their domestic banks."
It is a view shared widely by analysts who have observed the
chaotic attempts by European countries to stem the impact of a
banking crisis on their own lenders with little pan-European
cooperation in tackling the problems.
Paul De Grauwe, an economist with the London School of
Economics, blames national politics for the ongoing problems.
"Zombie banks are on an extended lifeline because of the
lack of resolve to close them," he said.
"If you were to create an independent European institution,
it would be easier to resolve that problem. But we are very far
from that. Everybody wants to protect their own turf."
On Wednesday, Almunia announced that Spain would receive 37
billion euros of euro zone funds to recapitalise four banks, on
condition of deep restructuring including closing hundreds of
Typically, Almunia imposes changes in return for approving
state assistance to laggard banks to prevent them from being put
at an unfair advantage over rivals.
Some officials at the European Commission have reservations
about the idea of putting him in charge of bank resolution,
however, instead favouring the creation of a new authority,
independent not only of the central bank but also of the
That agency could be staffed by officials now working for
Almunia, said one.
"The Commission's state aid division has done a good job,"
said one EU official, speaking on condition of anonymity. "They
ensure that state aid is not improperly used but resolution is
not just about imposing principles."