European Union leaders agreed on a legal roadmap to establish a single bank supervisor for the union. The first day of talks in the EU summit in Brussels saw leaders closing in positions on a deal aimed at completing the legal framework by the end of the year, with implementation in the course of 2013.
EU Economic and Monetary Affairs Commissioner Olli Rehn commented, cited by Reuters, that reaching such deal is key "to break the vicious circle between sovereigns and banks".
Framework for banking union should be concluded by end of 2012, with completion by early 2014, and is to cover 6,000 banks, according to a French official, adding that there is potential for direct bank recapitalization from bailout funds in 2013. However, the German counterparts denied that bank recapitalization can take place in early 2013.
The European Council, on the official 'European Council conclusions on completing EMU' statement, "invited the legislators to proceed with work on proposals on the Single Supervisory Mechanism (SSM) as a matter of priority, with the objective of agreeing on the legislative framework by 1 January 2013. Work on the operational implementation will take place in the course of 2013."
From German government source cited by Reuters:
"Direct recapitalization of banks in first qtr of 2013 is ‘very unlikely’ as can only begin once an effective single banking supervisor is in place. ECB will be responsible for systemically important banks, but will oversee other banks if necessary. There will be a mix of supervision between ECB and national supervisors."
Merkel said bank supervision must be working before direct recapitalization. Meanwhile, Hollande said EU summit confirms June decision on bank union. It was also reported that Spain’s bailout needs weren’t discussed at summit.
Frictions between Germany and France on how to go about the banking supervisor authority had been a troubling sticking point, with German Chancellor Angela Merkel demanding stronger authority to veto national budgets that breach EU rules, while French President Francois Hollande had been more supportive of moving towards a European banking union.