The European Central Bank should be responsible for a single supervisor for all the 6000 banks in the Eurozone – that is the key message in the European Commission’s new proposal for setting up a Single Supervisory Mechanism (SSM).

The proposal for a SSM is one of three steps to set up an EU banking union. It will be followed by an EU-wide guarantee scheme for deposits as well as a single authority for bank resolution and reconstruction. According to the proposal, the European Central Bank (ECB) will be responsible for supervising cross-border banks in the Eurozone. Non-euro countries are offered to join if they want to. The ECB will be able to force banks to comply with the rules.

Problems with the proposal

NFU sees several problems with the proposal. First of all is the timeframe. The European Commission wants to adopt the proposal before end of 2012. That is way too little time for such a thorough change to even be discussed.

Secondly, the proposal can cause imbalances between the European financial markets. Banks outside of the Single Supervisory Mechanism risk facing higher financing costs because they are supervised and backed up only by national systems.

Thirdly, the proposal does not motivate why the mechanism will be set up within the European Central Bank and not within the present EU banking supervisor, the European Banking Authority (EBA). With the current proposal, the ECB would act as a single voice in the EBA with a constant majority vote of 17 Member States behind it.  Non-euro countries therefore risk having to implement rules made for the Eurozone.

Fourthly, the new powers that the ECB might be given must not come into conflict with employees’ right of protection and trade union representatives’ right to execute their duties. Lastly, the task of supervising 6000 banks in a reliable and transparent manner is daunting. The Single Supervisory Mechanism must be guaranteed adequate resources to perform its job.

Heated discussions

The proposal has already met severe criticism, from among others the Swedish Minister of Finance Anders Borg. Since it requires unanimity in the Council to de adopted, it is likely that it will take quite some time before we see a single Eurozone supervisor in place.

NFU’s message to the lawmakers is clear: the proposal must not be rushed through, a level playing field has to be guaranteed and the possibility of setting up the Single Supervisory Mechanism within the European Banking Authority should be considered. And as always, employees’ rights have to be safeguarded and adequate resources must be ensured.