Speaking at a Reuters event, European Central Bank (ECB) policymaker Jorg Asmussen has said that the eurozone “cannot afford a half-baked banking union”, and he hopes politicians will take rapid action to establish an effective single supervisory mechanism (SSM) (opening speech).
Technical preparations for the implementation of SSM have been ongoing since September 2012, he said, even while the regulation is still being discussed by the European Parliament and not set to vote until 9-12 September 2013.
The ECB currently expects to be directly supervising around 130 banking groups operating in the euro area – approximately 85 per cent of euro area bank assets. As part of its preparation, it will be conducting a comprehensive assessment of all these banks.
Asmussen says that these investigations will be “rigorous” in order to be credible. This means it has prepared for a possible uncovering of capital shortfalls, but later added that those predicting European bank shortfalls are just making guesses, as the methodology has not been agreed yet.
The other key element of a banking union, the single resolution mechanism, was also addressed. Asmussen said it was “important that we have now established the principles that bail-out is out, and bail-in is in”.
But the time frame for enforcing bail-in proposals is too long, he says. Under the European Council approach, the bail-in tool would come into effect on 1 January 2019, under the European Parliament, 2016. But January 2015 would be ideal, he said – “markets will in any case anticipate bail-in earlier”. He points at the Spanish model for bank recapitalisation as a good example.