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EU Leaders Agree on Greater Banking Oversight

By Tristan Hugo-Webb
December 18, 2012
in Mercator Insights
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European Union leaders recently celebrated anew agreement that would place all banks operating in the eurozoneunder a single oversight body with the aim of securing the futureof the common currency and moving Europe towards greaterinterdependence on banking issues.

The region’s largest financial body, the European Central Bank,under the agreement will supervise between 100 and 200 majorfinancial institutions with thousands of smaller banks and creditunions remaining under control of national regulators in each ofthe respective member states. Mario Draghi, the president of thecentral bank, said the agreement “marks an important step towards astable economic and monetary union, and toward further Europeanintegration.”

Under the terms of the agreement, banks with more than €30 billion($39 billion USD) in assets, or assets greater than 20 percent oftheir country’s gross domestic product would fall under thesupervision of the central bank. In return for the broader centralbank powers, member states in the eurozone will have greater leewayto challenge the central bank’s decisions. Furthermore, financialinstitutions in the United Kingdom will be exempt from centraloversight as Britain fought for its independence as a hub forinternational banking. The chancellor of the Exchequer (the UKequivalent of the Secretary of the Treasury), George Osborne saidon the agreement, “The safeguards we have secured protect Britain’sinterests and the integrity of the European single market, it showsthat when Britain takes a tough stance but based on strongprinciple, Britain can win the argument and protect ourinterests.”

While some members of the EU were able to gain concessions from theagreement like the United Kingdom, others such as Spain and Irelandwill be forced to comply as part of the deal to receive bailoutmoney for troubled banks. The supervisory body within the centralbank, however, is not expected to be fully functional until 2014 atthe earliest, meaning that the intended benefits of greaterinterdependence will not be witnessed for some time.

For much of the past few years, failures of banks across thecontinent and questions whether the euro would survive as acurrency have dominated the headlines out of the European financialsector. While this particular move does not rule out any of thelingering concerns, it does show that Europe is moving towards abroader economic union and will attempt to maintain all members inthe eurozone. For the payments industry, this means one shouldexpect increased financial regulation and supervision by publicofficials when working in Europe, but at the same time continue tomake operating in Europe simpler. Dealing with one currency iseasier than the 17 individual countries that make up the eurozone.As German Chancellor Angela Merkel stated, the agreement “cannot beappreciated highly enough.”

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