The EU banking union needs a third pillar guaranteeing deposits

Daniele Nouy, secretary-general of the French Prudential Supervision Authority for banks, candidate to head Europe’s Single Supervisory Mechanism for lenders, speaking at the European Parliament last Wednesday stressed that, the “EU supervisor would be hampered if the two other pillars of banking union (recovery and resolution mechanism and deposit guarantee system) were not set up”. With this statement she introduced the need for a third pillar to safely build the European Banking Union, namely the deposits guarantee scheme. A deposit guarantee needed Until now the discussion was centered around the creation of the bank resolution authority and fund, meant to accompany the financial supervision mechanism, thus accomplishing the EU banking union with two pillars. In this way Nouy introduces now a new element in the already complex negotiations over the creation of the banking union. At this point it must be reminded that the European Central Bank (ECB) is preparing to take on its new banking supervision tasks as part of a single supervisory mechanism. The single supervisory mechanism potentially to be headed by Nouy will create a new system of financial supervision comprised of the ECB and the national competent authorities of participating EU countries. The supervisory mechanism will be legally in force as from November 2014. It is expected that the ECB will directly supervise around 130 credit institutions, representing almost 85% of total banking assets in the euro area. In view of that, the ECB has announced details of a comprehensive assessment of banks. This exercise is to be conducted by ECB during the next twelve months until November 2014, in preparation of assuming full responsibility for supervision as part of the single supervisory mechanism. The list contains the 130 ‘systemic’ Eurozone banks. The assessment is an important step in the preparation of the single supervisory mechanism and, more generally, towards greater transparency of the banks’ balance sheets and consistency of supervisory practices in Europe. A promise for transparency In her opening remarks, Mrs Nouy said Parliament had “very legitimate expectations to expect the new supervisor to be accountable and transparent. This will be very high on my agenda.” Responding to legislators’ questions, she added that “she had no problems about complying fully with the letter and the spirit of the ECB and the European Parliament agreement regulating accountability and that she would be prepared to attend parliamentary hearings regularly and not just occasionally, when times were bad”. Then she added, “Transparency is what people expect of us”. The economic and monetary affairs committee will vote to approve or disapprove of Daniele Nouy on 5 December and a plenary vote is scheduled for mid-December. The Parliament has the power to reject the candidate.