Territorial Dispute

Germany, ECB Spar Over Bank Supervision

lautenschläger reuters
Not amused by the BaFin: Sabine Lautenschläger of the ECB.
  • Why it matters

    Why it matters

    With pan-European bank supervision less than a year old, how such tussles with national governments are resolved could decide just how much control the European Central Bank really has over the continent’s banks.

  • Facts

    Facts

    • The European Central Bank has been in charge of supervising the largest 120 banks in the 19-nation euro currency zone since November 2014.
    • National regulators have since been relegated to a cooperative role, and still manage the day-to-day supervision of smaller banks in their countries.
    • The goal of the exercise has been to create a common rulebook for how financial firms on the continent are regulated – giving investors more confidence that banks are healthy.
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  • Audio

    Audio

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In Frankfurt, the European Central Bank has a complex, often antagonistic relationship to the banking peers of its host country, who for most of the post-war period called the fiscal shots in Europe’s largest economy.

But with the ECB’s rise as the fiscal heavyweight in the 19-country euro zone, German financial regulators and Bundesbank policymakers are increasingly chafing at ECB methods and philosophy that are not as conservative as they would like.

The latest point of contention is over whether the ECB or Germany’s federal financial market regulators are the supreme authorities with responsibility to oversee commercial banks in Europe’s largest economy, Handelsblatt has learned.

The ECB last year took over responsibility for supervising 120 of the largest banks in the euro currency bloc – a step that many hailed as the biggest move towards European integration since the introduction of the euro currency.

Since last November, the ECB has directed a teams of banking supervisors who go into commercial banks, open up and inspect their books. National regulators — which used to dictate the terms of supervision — are now merely on hand to cooperate with ECB supervisors, and no longer take the lead.

That newfound power never did sit well with bankers in Europe’s largest economy, where many of the thousands of smaller banks across the country in particular fought tooth and nail to remain supervised by German regulators rather than the new pan-European teams. It was a battle the Germans won to a large extent – just 20 banks in Germany are now directly supervised by the ECB, though the ECB does have the right to intervene in the regulation of smaller banks if it sees a crisis in the making.

Now Germany is trying to further roll back some of the ECB’s power. The German Finance Ministry wants to give the country’s own banking regulator, the German Federal Financial Supervisory Authority, or BaFin, the power to issue its own regulations on how banks manage risks and what areas of the bank can be outsourced.

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