* Calls for clear separation of bank supervision, monetary
* Such separation doable but difficult to achieve
* Says banks need to limit exposure to government debt
(Adds detail and background)
FRANKFURT, Nov 19 Bundesbank chief Jens Weidmann
called on Monday for Germany to have a strong voice in Europe's
planned banking union, adding that the European Central Bank's
new banking supervisory role must be clearly separated from its
monetary policy mandate.
Weidmann, who sits on the ECB's Governing Council, also said
that banks should limit their exposure to government debt by
backing up their sovereign debt holdings with sufficient capital
and by introducing a cap for how much money a bank can lend to a
Making the ECB the supervisor for lenders chiefly in the 17
countries that use the euro would be the first of three pillars
of a banking union, which also aims to break the negative
feedback loop between indebted governments and troubled banks.
Weidmann has resisted a push to broaden the ECB's remit by
putting it in charge of banking supervision in Europe - a move
he says risks compromising the ECB's main goal of price
In a speech at Euro Finance Week in Frankfurt, the
Bundesbank chief called for a clear separation of the two tasks
- which he said was possible, but difficult - and a stronger
German voice when voting on banking supervisory matters.
"As such decisions could also lead to fiscal costs, it would
only be consistent to have voting weights based on capital
shares," Weidmann said.
Germany's Bundesbank has the largest share of the capital
base at the ECB with 27.1 percent. It is still not clear how the
ECB plans to organise its new task.
"The banking union should relieve common monetary policy -
but there is a conflict of interests between banking supervision
and monetary policy in the practical implementation," Weidmann
"Both areas must therefore be strictly separated," he added.
"This separation is doable, but difficult - difficult from an
organisational viewpoint and difficult from a legal viewpoint."
ECB Executive Board member Benoit Coeure, also speaking on
Monday, stressed that the ECB should supervise all banks not
only the top banks, warning that restricting the ECB's scope
could result in a two-tier system of banking.
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".
He also said that banks should back up their sovereign debt
holdings with sufficient capital and there should be a cap on
lending to a state.
"It is now courteous to criticise the close connection
between state finances and national banking systems. But many
encourage banks nonetheless to buy ever more bonds from their
respective governments," he said.
That showed how short-term measures to fight the crisis did
not match the long-term needs, Weidmann said.
"If the banking union was simply to lead by the back door to
a comprehensive, joint liability and simply give the state more
possibilities to run up debts, then the currency union would be
a disservice. This risk exists, and I think we should not
underestimate it," Weidmann added.
(Writing by Eva Kuehnen; Editing by Susan Fenton)