In November, the European Central Bank will take over the task of supervising Europe’s biggest banks, relegating national banking supervisors in the euro zone to a supporting role. Not all German banks are happy.
The move marks a key step in a European “banking union” that has been heralded as the biggest move towards integration since the creation of the common currency. Before it takes over responsibility, the ECB is in the final stages of a stress test of European banks, a thorough examination of their balance sheets that will for the first time compare banks across Europe on a level playing field.
But the test has drawn fire from some German banks. They feel the ECB is not comparing like-for-like, thus creating unfair discrepancies in the data by treating assets from Greece to Germany in the same way.
In an interview with Handlesblatt, Andreas Dombret, who is in charge of banking supervision at Germany’s central bank, the Bundesbank, defended the process. He said banks will have a chance to air their concerns in talks with the ECB this month.
Mr. Dombret warned that many banks still have risks on their balance sheet and need “uniform and strict” supervision to be kept in line. Mr. Dombret also acknowledged that taxpayers are still at risk from bank failures, and was critical of the lack of progress on ending the problem of “too-big-to-fail” banks.
But he said progress has been made since the 2008 financial crisis by creating plans for how to wind down major banks that could bring the financial system to its knees. He also urged the ECB to keep its eye on the ball when it comes to monetary policy – don’t let financial stability concerns override the primary goal of keeping prices stable.
Handelsblatt: The European Central Bank is due to begin its work as Europe’s banking supervisor at the start of November. Can it really be ready by then?
Andreas Dombret: Prior to the FIFA World Cup in Brazil, many were wondering whether the stadiums were going to be completed on schedule. In the end, the stadiums were finished on time – and Germany even came away with the World Cup. Things will be much the same with the European banking supervisory authority – I am convinced that it will start its work on 4 November, as planned. The asset quality review and the stress tests being run on the banks are the last major steps.