EU court rejects rare challenge to ECB authority by German bank

BRUSSELS (Reuters) - A state-owned German development bank must be supervised by the European Central Bank, a European Union court ruled on Tuesday, rejecting the bank’s claims that the ECB had misused its powers and squashing a rare challenge to the central bank’s authority.

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State-owned Landeskreditbank Baden-Wuerttemberg Foerderbank argued that it should be supervised by the less demanding local authorities in Germany, rather than the ECB, since it posed only low risk given its unconditional state guarantee.

But the court ruled that an exemption should only be granted if a local authority was better able to meet regulatory objectives.

“The Court notes in that regard that the Landeskreditbank has not argued that the German authorities would be better able to achieve those objectives and safeguard those principles, but merely attempted to establish that supervision by the German authorities was sufficient,” the General Court said in a ruling.

The ECB supervises 125 of the euro zone’s biggest banks, which hold 82 percent of the sector’s balance sheet.

Karlsruhe-based L-Bank has total assets of 75 billion euros ($82.79 billion), more than twice the ECB’s 30 billion threshold for becoming a bank’s supervisor.

But L-Bank argued that its circumstances were sufficient to remain under German supervision and the ECB had misused its powers when it applied inappropriate criteria in taking over supervision.

L-Bank said it was surprised by the ruling but was awaiting the full text of the decision.

ECB supervision is generally more costly, time consuming and cumbersome, which has proved an irritation for some banks as they are struggling to increase earnings and keep a lid on costs.

German banks have a long list of complaints about ECB supervision, including language, because the banks prefer to work in German while the ECB works in English, slowing communication as documents and meetings have to be translated.

Indeed, Bundesbank board member Andreas Dombret defended German banks preference for their local language on Monday, arguing that domestic inspectors have a natural advantage and that the ECB is saddled by a language barrier.

Dombret also said that supervision should not be hierarchical and the ECB should form a web of supervisors with local entities.

($1 = 0.9060 euros)

Reporting by Philip Blenkinsop; Writing by Balazs Koranyi. Editing by Alastair Macdonald and Jane Merriman