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France Calls for EU to Press Ahead on Bank Supervisor in 2012

Nov. 13 (Bloomberg) -- France called for the European Union to press ahead with plans for a banking union amid disagreement on how a proposed new supervisor should look and how many banks it should oversee.

“It’s ambitious, but it’s a particularly important project,” French Finance Minister Pierre Moscovici told reporters today in Brussels before a meeting of EU finance chiefs that will discuss the plan. “This work will still take a few weeks,” though an agreement can be reached by year-end, he said, adding that the single supervisor to work closely with national regulators in a “fully unified” system.

Moscovici’s call for speed contrasted with Luxembourg Finance Minister Luc Frieden’s insistence on caution, as well as skepticism from countries outside the 17-nation euro zone. Swedish Finance Minister Anders Borg said there might be a need for “technical treaty change” if the new supervisor is housed at the European Central Bank and will have the potential to supervise banks outside the currency bloc, as proposed.

EU leaders agreed in June and October to move forward with common ECB-led bank supervision as a way to separate financial sector risks from sovereign debt troubles, with the goal of agreeing on a political framework by Jan. 1. If a common supervisor is set up next year, it would open the door for the euro area’s firewall fund to offer direct aid to banks.

‘Potential Difficulty’

Nations need to “agree what is needed” and look for ways to proceed under existing European treaties, Richard Corbett, an advisor to EU President Herman Van Rompuy, said in a Bloomberg Television interview.

“Changing the treaty takes longer and is fraught with potential difficulty and everyone knows that,” Corbett said. “You can much more speedily do things if they’re possible within the existing treaty.”

Financial markets are watching closely to see how the supervision plan could affect Spain, which is still in the early stages of a bank bailout worth up to 100 billion euros ($127 billion). Spain may get its first payout in early December if it completes banking reviews this month as expected.

Spain’s 10-year yield increased five basis points, or 0.05 percentage point, to 5.94 percent at 10:55 a.m. London time. It reached a six-week high of 5.96 percent in earlier trading, after yesterday’s disagreement between the International Monetary Fund failed and euro-area finance ministers on a strategy to help Greece bring down its debt load.

‘Several More Months’

Luxembourg’s Frieden predicted it would take “several more months” to iron out differences on the shape of bank supervision. The EU needs to work out how the common supervisor will interact with the entire 27-nation single market and how the European Banking Authority would adapt, he said.

“It’s necessary first and foremost to decide what is the objective of this banking union,” Frieden said. “If the objective is to intervene when banks are in difficulty, we will find another solution than if it is to replace national authorities. I think we need a mix.”

Frieden called for national regulators to play a strong role in whatever new system takes shape. “It is unthinkable for me that now in two hours we solve all these problems,” Frieden said. “I prefer quality to making a quick decision.”

EU Financial Services Commissioner Michel Barnier has proposed a system where the ECB would have final say over all banks within its remit on issues that could affect financial stability, while working closely with national authorities on day-to-day issues.

U.S. Model

Europe could learn from the way federal regulators in the U.S. work with their state counterparts, said Sheila Bair, former chair of the Federal Deposit Insurance Corp., in an interview in Brussels today.

“The FDIC shared responsibility for supervision with states,” Bair said. “So yes. it can work.”

ECB-led bank supervision is a “good first step” in crisis-fighting that needs to be followed a strategy for how to handle failing banks, she said.

“I think the next step really needs to be having a resolution mechanism,” Bair said. “You have 66 banks on state aid right now. Having a standardized process for restructuring those institutions would be very helpful.”

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