Reuters: Regulatory News: UPDATE 1-German central bank resists rush for banking union

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UPDATE 1-German central bank resists rush for banking union Jun 12th 2012, 13:20 Tue Jun 12, 2012 9:20am EDT * Buba:Banking union could help supervision, stop bank runs * Barroso: EU banking union could be ready in 2013 * UK says won't join banking union * HSBC says banking union an idea worth considering By Jonathan Gould and Huw Jones FRANKFURT/LONDON, June 12 (Reuters) - A European banking union needs to be anchored in a fiscal union with powers to stop countries breaking budgetary rules, Germany's Bundesbank said on Tuesday, effectively rebuffing pressure for rapid moves to shore up euro zone banks. "In a banking union, a crisis in one country's banking system may require the use of taxpayer money from other countries," Bundesbank vice president Sabine Lautenschlaeger said in the text of a speech at a banking supervision conference. "Whoever is footing the bill must also have a right of control, particularly when it comes to the large sums that are seen in banking crises," she said. The German stance puts a banking union on the same time-consuming track as the treaty change needed to create an economic union, a process likely to take years. The leaders of the European Central Bank and the EU Commission have urged much swifter agreement to help the bloc's banks, which have been lending heavily via the bond markets to over-stretched governments and are also nursing bad debts from the region's slide into recession. French Finance Minister Pierre Moscovici said on Tuesday that the planned aid package of up to 100 billion euros ($125 billion) for Spain's banks was the first step towards a euro banking union. Jose Manuel Barroso, president of the European Union's executive European Commission, pushed the plan for all the bloc's 27 countries to submit their big banks to a single cross-border supervisor as early as next year. Britain, which hosts Europe's biggest banking centre, should be able to opt out as long as it did not block the plan, he told the Financial Times. UK OUTSIDE Britain said on Tuesday it would back a banking union for the 17 euro states while doing all it could to ensure the wider EU single market does not suffer. UK financial services minister Mark Hoban told a debate held by TheCityUK lobby that a banking union was part of the "remorseless logic" of fiscal and monetary union in the euro zone. The banking union plan includes an EU-wide deposit guarantee scheme and a rescue fund paid for by levies on financial instutitions. Germany fears it would end up footing the bill if there were no proper safeguards. Buba's Lautenschlaeger said that while it was not yet clear what politicians mean by "banking" or "fiscal" union, a banking union would bring advantages if it implied more integrated banking supervision or greater firepower to wind down national banks and prevent bank runs. But she warned that banks in countries that had to offer high returns to lenders would benefit most from a banking union and might use the opportunity to buy more government bonds from their home country - effectively dampening the disciplining effect of the financial markets. The prospect of a banking union is already sparking a regulatory turf war over who will supervise it. For some policymakers, the European Banking Authority is the natural home but critics say it lacks the resources. European Central Bank policymaker Christian Noyer said the ECB should get new, wide ranging supervision powers over large banks in a banking union. "The ECB and national central banks are well equipped to be the backbone of the financial union," Noyer wrote in the Wall Street Journal. Link this Share this Digg this Email Reprints

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