EU lawmakers give ECB new powers

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Strasbourg - European lawmakers granted new powers to the European Central Bank on Thursday to supervise up to 6,000 euro zone banks, the first step in building the bloc's flagship banking union. Lawmakers voted to allow the ECB to become the new banking supervisor from 2014, almost a year after EU governments gave their backing to the plan. The goal of creating a single framework and backstop for the euro-zone's banks, with mechanisms to wind down failed institutions and protect savers' deposits, is one of the EU's most ambitious and challenging projects. After more than three years of financial market turmoil following the bailouts of Greece, Ireland, Portugal and Cyprus, setting up a more unified banking system in the euro zone is seen as critical to defending against future crises. But there are also concerns. Germany, Europe's biggest economy, has tried to limit the scope of the ECB's supervision and limit plans for an independent authority and fund to deal with failed banks, worried that it will end up footing the bill.

The European Parliament has also sought to increase its influence in the crisis response, threatening to delay its approval of ECB supervision unless the supervisor shared details of its decision-making with the European Parliament.

Many of those obstacles have now been resolved and late on Tuesday the ECB confirmed a deal had been struck between European Parliament President Martin Schulz and ECB President Mario Draghi.

The ECB is due to become the single supervisor in the second half of 2014. Draghi wants to see the next step, an authority to wind down failed banks, up and running by then too, an issue EU finance ministers will discuss in Vilnius on Friday.

They hope to reach an agreement by the end of the year.

“We think the schedule is very tight, especially since the issue is still very controversial among member states,” said Philippe Gudin, an economist at Barclays Research.

“Any delay on the agreement would postpone the single resolution mechanism until after the arrival of the new European Commission in October 2014,” he said. - Reuters