The EU finance ministers hope to agree already on Tuesday on the set-up of the new supervisory body, which will be headed by the European Central Bank and will hold wide-ranging authority over banks.
But Germany and France, the continents two largest economic powers, disagree on how many banks the ECB should be allowed to oversee, when it should start, and what its final powers should be. German Finance Minister Wolfgang Schaeuble said it would be very difficult to get approval by the German parliament if (the deal) would leave the supervision for all the German banks to European banking supervision.
Nobody believes that it would work, Schaeuble said. Germany has hundreds of local banks which operate differently from large multinationals like Deutsche Bank. Schaeuble has been pushing for the new supervisor to oversee only the few dozen largest banks in Europe.
On top of that, he said the ECB had to remain at arm's length from any supervisory decision-making it takes on to protect its independence. The ECB sets monetary policy for the 17 EU countries that use the euro and is committed to remain independent of political pressure. Germany fear the ECB's independence may be lost if it has to negotiate the bailout of a bank in one of the member states. The last decision cannot be left to the governing Council of the ECB, Schaeuble said of bank bailouts. In contrast, France's Finance Minister Pierre Moscovici came out strongly for an agreement `'that covers all banks, and that is under the final control of the ECB.
He advocates supervision of all 6,000 institutions that have a banking license in the EU. In the end it must be the ECB that has the responsibility on the whole. Otherwise, there is no real system of banking supervision, he said.
The banking sector has been seen as a prime cause of Europe's three-year crisis and agreement to fix it as an essential part to avoid a recurrence. Not only have banks taken on bad investments, but national supervisors have often been reluctant to impose restructuring plans on them.