We've had a look at the latest compromise proposal to turn the ECB into the eurozone's single banking supervisor. It has been put together by the Cypriot Presidency in a bid to finalise a deal at today's meeting of EU finance ministers. Below are some of our initial thoughts (we may update in due course).
Arguably, measures aimed at reaching a clear separation between the ECB's monetary and supervisory tasks - Germany's main concern - are the most interesting part. This is what the proposal under discussion says:
Composition of supervisory board
Chair (can’t be a member of the ECB Governing Council)
Vice-Chair (is a member of the ECB Executive Board)
3 ECB representatives (with voting rights, but can’t perform ECB monetary policy-related duties at the same time)
National supervisors of participating member states – i.e. including non-euro countries that want to join
Simple majority (Chair can cast vote in case of draw)
QMV for regulations on matters “having a substantial impact on credit institutions” – although there is no clear definition of what “substantial” impact is or who determines it.
What does the Supervisory Board do?
Tables draft decisions and submits them to ECB Governing Council for adoption, “pursuant to a procedure to be established by the ECB” – so the details have yet to be fleshed out.
Governing Council has up to ten days to object to draft decision, but has to give written justification – and is encouraged to voice any monetary policy concerns in particular.
If a decision taken by the Supervisory Board is changed following objections by the Governing Council, a non-euro country can express its disagreement (a safeguard, given that non-euro countries don't sit on the Governing Council).The country also can notify the ECB that it will not abide by the relevant decision if it is still not happy with the outcome. However, in this case the ECB will "consider the possible suspension or termination of the close cooperation with that Member State" - so if a country objects to a single proposal it runs the risk of being excluded from the banking union.
This draft then, contains some progress on the make-up of the boards and a bit more in terms of how they will interact, but the crucial decision making process still lacks some detail. Particularly over the exact interaction between the Governing Council and the Supervisory Board if the Council objects to a proposal.
It is also clear that ultimate power resides with the Governing Council and although non-eurozone countries do have somewhat of a get-out-clause, the separation between monetary policy and financial supervision still seems limited. (As we suggested would always be the case due to the legal constraints).
Much work to be done, especially on the finer points.