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Top Bank Supervisor Backs ECB in Stress Test Battle

BBK Andreas Dombret, HB Bernd Roselieb2
Andreas Dombret defended the ECB in an interview with Handelsblatt.
  • Why it matters

    Why it matters

    The creation of a single European banking supervisor has been heralded as the biggest step towards European integration since the introduction of the euro currency. At stake is the credibility of European Central Bank, which will take over as banking supervisor in November.

  • Facts

    Facts

    • The European Central Bank will release the results of a major “stress test” examination of European banks’ balance sheets in the second half of October.
    • German banks fear the ECB is not comparing like-for-like.
    • The ECB is set to take charge of supervising Europe’s largest banks on November 4.
  • Audio

    Audio

  • Pdf

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.

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