Slow Path to Policing Europe Banks

 (Photo credit: President of the European Council)

 Cyprus. swing trading .—When euro-zone leaders decided in June to equip the European Central Bank with new powers to police banks in the currency union, the agreement appeared clear. "When an effective single supervisory mechanism is established," they declared, the euro zone's bailout fund would "have the possibility to recapitalize banks directly." Investors cheered. Finally, the euro zone was going to break a "vicious circle" that had proved fatal for Ireland and now was threatening Spain: that of failing banks damaging the finances of governments whose own weakness in turn eroded confidence in national banks. What was less clear from the leaders' statement was exactly what they meant by "effective." It is now evident that agreement over what's required of an effective supervisor could take some time.

For the European Commission, the European Union's executive arm that the leaders charged with drafting the proposal, the precondition for allowing the European Stability Mechanism to recapitalize banks directly would be met once the ECB starts policing already bailed-out banks—ideally on Jan. 1, 2013.

It didn't take long for German Finance Minister Wolfgang Schäuble to communicate that he had a different understanding. "I don't see that one can have direct recapitalization of banks from the European Stability Mechanism already from Jan. 1," he said at a meeting with his euro-zone counterparts in Cyprus at the weekend. Building up the personnel and expertise to "effectively" supervise the euro zone's banks would take time, he warned. ... Continue to read.

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