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Mathew Elderfield issues warning over EU banking union

The Deputy Governor of the Central Bank of Ireland also said the concerns of the UK and other countries outside the eurozone should be addressed.

File photo of Deputy Governor of the Central Bank of Ireland, Mathew Elderfield.
File photo of Deputy Governor of the Central Bank of Ireland, Mathew Elderfield.
Image: James Horan/Photocall Ireland

THE DEPUTY GOVERNOR of the Central Bank of Ireland, Mathew Elderfield, has said that it is important that the approach to the European Union banking union does not “undermine the single market”.

Elderfield was speaking at a Bloomberg business breakfast on London this morning.

He said creating some distance between supervisors and the banks they regulate can help improve the capacity for challenge and ensure a broader, more detached, perspective on problems. However he added that “bringing in a foreigner to do your supervision is not, alas, the magic solution to all the woes of a banking system”.

He said the banking union may allow the development of a deeper single market although there are considerable uncertainties and potential risks due to the fact that only a subset of the EU will be taking the steps towards a banking union.

The Central Bank deputy governor said the voting arrangements of the European Banking Authority (EBA) need to be changed and that the concerns of the UK and other countries outside of the eurozone “need to be addressed.”

Creating some distance between supervisors and the banks they regulate (and, indeed, from the political systems of the banks they regulate) can help improve the capacity for challenge and ensure a broader, more detached, perspective on problems. Bringing in a foreigner to do your supervision is not, alas, the magic solution to all the woes of a banking system.

Another key challenge, according to Elderfield will be to develop the operating model of the ECD’s new supervisory responsibilities.

“While there will necessarily be a framework of committees and panels for certain types of decisions and policy-making, it is vital that there is clear accountability and the capacity for decisive executive decision-making, particularly in times of crisis,” he said.

Elderfield said it is clear that “Ireland is not the only jurisdiction where significant questions have been raised over the asset quality underlying banks’ actual balance sheet strength” and it makes sense to undertake a pan-European asset quality review exercise of some sort.

He said that above all, the European political process needs to ensure that the new resolution rules and ESM direct recapitalisation tools are fully operational for the new supervisor when it takes on its responsibilities.

“If not, the ECB itself is at risk of succumbing to a very nasty case of micro-macro schizophrenia,” he added.

Read: Eurozone finance ministers meet (yet again) to try to fix Greece>

Read: EU budget talks head into second day but no deal yet>

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