Support Increases for a Single EU Bank Supervisor

The political desire to form a supranational European “banking union,” to extend a lifeline to the floundering monetary union, has been demonstrated by EU leaders’ support for the appointment of a single EU bank supervisor.  It is likely that this proposal will be discussed as early as next week at the forthcoming EU summit and will be specifically referred to within the G20 communique published at the close of the G20 summit in Los Cabos, albeit in aspirational terms.

This new-found political impetus has been necessitated, in part, by negative market reaction to the recent €100bn bailout of Spanish banks. French President, François Hollande, supported by the governments of Italy, Spain and Austria, is calling for the use of the Eurozone rescue fund to ‘bail-out’ struggling banks, while simultaneously pushing for ECB oversight of cross-border banks.

Although German Chancellor, Angela Merkel, supports such pan-European supervision, her resistance to changes to the bail-out scheme remains.  Germany is reluctant take the lion’s share of the risk of underwriting €5tn of household deposits and continues to insist that rescue funds are directed via loans to Member State so that national governments remain accountable.  Concerns also remain as to whether the ECB would provide an adequate mechanism for supranational bank bail-outs.

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