EU risks "too big to cooperate" bank supervision

Fri May 24, 2013 12:50pm EDT
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By Huw Jones

BRUSSELS/LONDON (Reuters) - The role of the European Banking Authority must be beefed up beyond current plans to ensure that regulation of Europe's banks does not fragment into two competing systems, one of the architects of the reforms told a public hearing on Friday.

Jacques de Larosiere, former head of the Bank of France and IMF, said the European Central Bank's role in a European Banking Union to supervise euro zone lenders risked creating a "duopoly" that would split the bloc's single market next year.

The ECB and the European Banking Authority (EBA), which will continue to supervise banks in non banking union countries, would be a "de facto duopoly... the too big to cooperate symptom", he told the hearing in Brussels, part of a review process that is aimed at tweaking the reforms.

The EBA, with its remit to forge a single book of banking rules for all EU countries, must be made more independent to preserve the single market, he added.

The financial crisis prompted the EU to strengthen supervision by setting up in 2011 the London based EBA, and sister authorities for securities in Paris and insurers in Frankfurt, based on a blueprint from de Larosiere.

Friday's hearing is part of a review of the two-year old set up and how it should be changed to reflect the ECB becoming the banking supervisor in 17 of the bloc's 27 countries.

De Larosiere said the bloc must also avoid the ECB and EBA pursuing different stress tests for banks.

"We don't want two classes of tests in Europe where one could be seen as weaker than the other," he said.   Continued...

Former Bank of France and IMF director Jacques de Larosiere, whose recommendations to tighten financial supervision in Europe were largely endorsed by the European Commission, reacts to the G20 Pittsburgh summit outcome during an interview with Reuters in Paris September 28, 2009. REUTERS/Benoit Tessier