The European Union at the very least understands that a Eurozone banking union is a necessity moving forward in order to create a more stable Eurozone. The obvious step to undertake is to give the ECB the sole power to grant banking licenses and supervise the banking system for the 17 member Eurozone. Those exact proposals are swirling around Brussels as I type. September 12th is the date where such a plan may be unveiled.
The European Commission is responsible for the plans and will work overtime during the next two weeks to hammer out a final plan which will at least lay the groundwork and most likely will be amended several times. The ECB will receive powers to step-in and take over day-to-day operations in extreme cases, but national regulators will still be allowed to decide when to close down a bank. The ECB will be allowed to make recommendations to national regulators and have a vote in the process as it will serve as the regulator of national regulators.
The ultimate goal is to give the ECB sole supervisory powers and a monopoly when it comes to regulation as well as oversight and implementation directly related to the financial stability of the Eurozone. Michael Barnier, the Financial Service Chief of the EU, stated that national regulators should be in charge of consumer protection as well as other smaller tasks and take a support role to the ECB.
The ECB needs to be allowed to step in and close banks without limits and consultation with national regulators. Initially the ECB may receive that power only for banks which will be labeled important and whose failure will pose a systemic risk for the stability of the world’s biggest economy. National regulators may be allowed to engage in supervisory roles when it comes to smaller national banks which will not pose a risk to the financial system.
A collaboration between the ECB as well as national regulators and the rumored creation of a third body on a high ranking EU Parliament level makes sense when it comes to the supervision of the Eurozone’s 6,000 plus lenders if implemented and executed with sophistication. We will see if EU politicians will deliver a pleasant surprise on September 12th or if this will be another episode of hyped up talk with the failure to deliver.
The window of opportunity is closing rather fast and tough decisions will need to be undertaken before it will be too late. The Eurozone debt contagion has created a once in a lifetime opportunity to fix the old and dysfunctional system as it pointed out the flaws over the past 30 months. The EU has rare chance to take the current problems, ignore the socialistic, worthless scumbags and create a system which will encourage financial stability, economic growth as well as sustainability.
The next twelve months will be very crucial as decisions will made by politicians will shape the future of the EU. The EU will either suffer from a prolonged recession and several lost decades in the same manner Japan and the U.S. did and will do or the EU will make the right decisions and rediscover the old world. This is a great opportunity to become a growth engine again and create a society which will prosper as it will finally learn from its mistakes.