European finance ministers are due to meet ahead of Thursday’s EU summit to thrash out details for a single supervisory banking mechanism under the watchful eye of the European Central Bank.
It is part one of a three-part process to establish full banking union.
Daniel Gros, an economist with EPC, said: “The question is now, where you can install a second, new department in the central bank, so to speak, a second Euro Tower, which is completely separate from the first and also independent. It will be very difficult, because then the ECB will become two institutions.”
Last week ministers failed to reach an agreement and it is still unclear if the ECB will monitor all 6,000 banks in the eurozone or just the main players.
Gros said: “It is likely that the ECB will engage only with the larger institutions and that it will delegate responsibility in part to national supervisory authorities to monitor the other banks. The most important thing is that the ECB always knows what’s really going on.”
Once the legal framework is in place the ECB will begin its new role and that will take up to a year before the process is complete.
Our correspondent Rudolf Herbert in Brussels says:
“It will not be a drama if the finance ministers once again fail to reach agreement on all issues. Because common banking supervision is key to stabilise the euro. The euro zone cannot afford another diluted compromise in a time of economic crisis.”