* Coeure calls for ECB to police all banks
* Bundesbank President sets down conditions for support
* Contrasting message underscores divisions over banking
By John O'Donnell and Eva Kuehnen
BRUSSELS/FRANKFURT, Nov 19 The European Central
Bank on Monday said that it should have the power to supervise
all lenders in a banking union, a demand the president of
Germany's influential Bundesbank was quick to temper.
After three years of piecemeal crisis-fighting, European
countries are attempting to agree on a banking union to lay a
cornerstone of wider economic integration and protect the euro.
It marks the first attempt to unify the bloc's response to
But the reform has divided Europe, fuelling tensions that
were once again evident in the contrasting messages given by the
French member of the ECB's Executive Board and the president of
Speaking in Brussels, ECB executive board member Benoit
Coeure said: "It is crucial that all banks are covered by the
SSM (single supervisory mechanism)."
Such as move would mean the ECB would supervise a broad
range of lenders, from large European multinationals to small
The remarks from a member of the body that forms the nucleus
of the broader Governing Council puts the ECB at odds with the
German government, which wants to keep primary oversight of the
community savings banks in the country, and is seeking to limit
the ECB's remit to systemically important lenders.
But Coeure warned that failing to give the ECB broad scope
would undermine banks that do not come under its supervisory
watch. His fear is that banks outside the scheme would be viewed
as less secure, making it harder to keep deposits or funding.
"A two-tier system would result in an uneven playing field,
effectively segmenting the banking sector, which is precisely
what we are trying to repair," he said.
Making the ECB the supervisor for lenders chiefly in the 17
countries that use the euro would be the first of three pillars
in a banking union and one EU leaders have committed to complete
by the year-end.
OVERSHOOTING THE MARK
But Jens Weidmann, the Bundesbank president, warned that the
new scheme of supervision should not "overshoot the mark" and
emphasised the need for national supervisors to keep
responsibility where risks were shouldered by individual
countries and advocated rules on winding down banks in crisis.
"National responsibility can remain, where risks can be
borne at the national level and there is no danger for the
taxpayers of other member states," he said.
He also argued for a strong system to tackle troubled banks.
"Where risks are covered at the European level, there must also
be the possibility for joint control and intervention," he said.
Weidmann also demanded a clear separation of the tasks of
monetary policy and supervision at the ECB and a stronger German
voice when voting on banking supervisory matters.
"There is a conflict of interest between banking supervision
and monetary policy in the practical implementation," Weidmann
His remarks will fuel growing concern in Brussels that the
banking union construct risks crumbling.
The German government wants the ECB's supervision limited
because it is worried that the more banks are included in the
scheme, the higher the potential cost when, as is ultimately
planned, supervision is backed up by a central fund to pay for
the closure of troubled lenders.
Weidmann warned that if the banking union were to lead to
joint liability for individual state debts and allow countries
to run up borrowings, then it would undermine the currency.
"This risk exists, and I think we should not underestimate it."
When supervision is in place, it would pave the way for the
euro zone's rescue fund, the European Stability Mechanism, to
help troubled lenders directly rather than via their
Complementing the new supervisory regime with two additional
pillars - a central scheme to wind down banks and a combined
means of deposit protection to prevent bank runs - would
complete the banking union.
Weidmann pointed out that the third aspect of establishing a
joint deposit guarantee scheme - which Germany opposes - had
moved to the background, "in my view rightly so".