HANDELSBLATT EXCLUSIVE

German Auditors Sound Alarm on ECB Oversight

  • Why it matters

    Why it matters

    Without independent auditing, there’s no way to know whether or not the ECB is fulfilling its new role overseeing the euro zone’s big banks.

  • Facts

    Facts

    • In 2015, the responsibility for overseeing the 120 largest banks in the euro zone shifted from national regulators to the ECB.
    • The Federal Court of Auditors, an independent German body, said its European counterpart, the European Court of Auditors, is currently unable to review the ECB’s regulatory activities.
    • There are concerns that the ECB may not being keeping close enough tabs on the euro zone’s big banks, and that the central bank might face a conflict of interest due to its dual role as a regulator and a monetary policymaker.
  • Audio

    Audio

  • Pdf
Europäische Zentralbank
Germany is worried about the lack of accountability at the ECB. Source: DPA.

Germany’s federal auditor is concerned that the European Central Bank lacks accountability in its oversight role in the banking sector, according to a parliamentary report obtained by Handelsblatt.

In a report submitted to the German parliament’s budget committee, The Federal Court of Auditors, an independent body, says its E.U. counterpart, the European Court of Auditors, is unable to perform “an extensive review of the bank supervisory functions” at the ECB.

In its report, the federal auditor says bank oversight is an important public function that does not fall under the rubric of central bank independence, noting that national banking regulators like Germany’s had previously been fully audited before the ECB took over the responsibility in 2015.

The federal government should explore all options for closing this oversight gap,” the report said.

Both Germany’s central bank chief, Jens Weidmann, and the German finance ministry have also called publicly for bank oversight to be separated from the ECB.

The ECB has argued that the European Court of Auditors only has the authority to review the central bank’s personnel and budgeting, not its decisions as Europe’s top banking supervisor. The European Court of Auditors has complained in the past that the ECB has used this argument to justify its refusal to turn over certain documents for review.

That, according to the German agency, has left a gap in oversight that didn’t exist before 2015, since national regulators in the euro zone tended to be separate from their country’s central banks.

“Insufficient bank oversight has cost European taxpayers billions,” Gesine Lötzsch, chairwoman of the budget committee and a member of the socialist Left Party, told Handelsblatt. The European Court of Auditors must have unrestricted access to all ECB documents about its oversight methods, she said.

In a statement, the ECB said that it works closely with the European Court of Auditors and has made “a considerable number of documents and explanations available.”

There have been concerns about an auditing gap ever since responsibility for supervising the 120 largest banks in the euro zone shifted from national regulators to the ECB.

In a report published late last year, the European Court of Auditors said the ECB remained too reliant on national regulators to perform its oversight functions. ECB regulators were reportedly present at onsite bank inspections just 12 percent of the time.

“The defensive attitude of the ECB is viewed across party lines as inappropriate.”

Sven Giegold, German Green Party representitive in European Parliament

Officials such as Gunter Dunkel, head of the German Association of Public Banks, worries that there are “conflicting interests” within the ECB as a consequence of the central bank’s dual responsibilities to set monetary policy for the euro zone and oversee the currency union’s big banks.

“One part of the ECB wants banks to grant more loans to expand their balance sheet totals and promote growth in Europe,” Mr. Dunkel told Handelsblatt in a September 2016 interview. “The other part of the ECB wants smaller banks, because they are considered more secure.”

Mr. Dunkel said the ECB should separate its regulatory and monetary-policymaking functions to avoid a conflict of interest. The regulatory arm could be consolidated with other oversight agencies such as the European Banking Authority and the European Securities and Markets Authority, Mr. Dunkel added.

Both Germany’s central bank chief, Jens Weidmann, and the German finance ministry have also called publicly for bank oversight to be separated from the ECB.

European Commission Vice President Valdis Dombrowskis, responding to a joint complaint by Dutch and German auditors, said Brussels was reviewing the possibility that the ECB and the European Court of Auditors could reach an informal agreement to close the auditing gap.

Sven Giegold, the Green Party’s finance expert in the European Parliament, said a move by the commission to clarify the authority of the European Court of Auditor vis-a-vis the ECB would enjoy broad support among parliamentarians.

“The defensive attitude of the ECB is viewed across party lines as inappropriate,” Mr. Giegold said. He added that, in legal terms, it’s clear the ECB cannot use central bank independence as an argument when it’s involved in the area of financial policy.

Germany’s Federal Court of Auditors, meanwhile, said the German parliament’s budget committee should call for Berlin to push for the ECB to submit to independent supervision.

The German finance ministry, however, is skeptical that placing the ECB under comprehensive supervision would be compatible with European law.

The auditors, of course, disagree: “In the view of the Federal Court of Auditors, bank oversight is not part of the ECB’s central bank functions, which are largely exempt from review by the European Court of Auditors.”

Yasmin Osman is a financial editor with Handelsblatt’s banking team in Frankfurt. Jan Hildebrand leads Handelsblatt’s financial policy coverage from Berlin and is deputy managing editor of Handelsblatt’s Berlin office. Norbert Häring holds a PhD in economics and writes about monetary policy, exchange rates, credit markets and the latest scientific developments in economics. To contact the authors: osman@handelsblatt.com, hildebrand@handelsblatt.com, haering@handelsblatt.com.

We hope you enjoyed this article

Make sure to sign up for our free newsletters too!