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European Parliament insists eurozone single banking union must be closely supervised

The new supervisory rules for a single banking union outlined by the European Commission (EC) this week, which will initially cover the eurozone countries but also be relevant for those outside the single currency like the UK, must be democratically accountable, said the European Parliament (EP) in a resolution adopted yesterday.

The rules must be of good quality and provide for accountability, warned the EP in a resolution passed by the body that represents European voters from across the continent. The Parliament fears that member states' current preferences for establishing the single banking union risk sending the wrong message about an enclosed club, perpetuating inefficiencies, and lacking accountability. The resolution highlights the political differences between the competing executive and elected bodies within the European Union (EU) and especially the arguments between pan-European bodies and national member states, with some eurozone countries keen to adopt harmonised supervision in a bid save the euro and the UK, with its large international banking business, wary of being ‘shackled’.

The EP resolution, adopted by a show of hands, followed the EC tabling two proposals to reinforce banking supervision, and sets out some of the key concerns that MEPs want to see addressed in the decisions being made now that will shape the future system.

The resolution welcomes the fact that EU countries have now accepted that an integrated bank supervision system is necessary, more than two years after the EP itself called for this. However, it sounds the alarm about governments' apparent intention to avoid developing a system that is transparent and democratically accountable.

Member states, the resolution says, are moreover pre-empting the Commission's role as initiator of legislation by imposing a decision-making process which would exclude the EP from deciding on one of the texts. The EP stands ready to adopt negotiating tactics to counter this, the resolution adds.

The resolution also highlights certain points of substance which should be considered in the debate on how to enact banking supervision. An important one concerns bank recapitalisations, which, the resolution suggests, could be carried out by the European Stability Mechanism (ESM). A second is the need to devise a system which will be able to address any spill-over effects on non-eurozone members stemming from the creation of a eurozone banking union. – a key concern for the UK.

Earlier MEPs raised these and other issues with the Commissioner responsible, Michel Barnier. Most notably they insisted that care should be taken to ensure that the rules provided for sufficient accountability of the supervisor, that there would be clarity on how to deal with failing banks, and that the extra supervision for the eurozone banks would not in any way hamper the single market.

The two legislative proposals will now be scrutinised by the EP and member states over the coming months. Parliament has a consultative role for the legislative text conferring eurozone bank supervisory tasks on the European Central Bank ECB. The Council must await Parliament's opinion before it can adopt this legislation. In the case of the legislative text amending the setup of the European Banking Authority (EBA), however, Parliament shares decision-making power with the executive Council.