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Eurozone Crisis – ECB Getting Powers Over the Banks

Well, you cannot say that this was not to be expected :)). European Union is very different in terms of banking regulations compared to US. They are sending lifelines to the banks, but also they attach lots of strings to this. One of the latest strings is to regulate the banking sector much tighter.
Today, the Eurozone leaders have agreed in Brussels to set-up a single European area bank supervisor under the leadership of the European Central Bank (ECB). This is no small task – EU has 4,300 financial institutions with around 36,000 billion Euros in assets. With most of these in distress, ECB has the tough task of supervising, giving lifelines and helping these boost the economy.
This move is largely understated by the press and the markets in general. Barely no news about this was published on the media (except for a Financial Times article, which s usually was unhappy with the Bank of England’s decrease in autonomy). Bank shares went mildly down (1-2%), so markets moved a bit but not much.
Why is this so important? It actually means that regulators will control much tighter the banking activities. They will follow on the segregation between the investment and consumer banking, banking practices in EU, derivatives etc. As usually, banks are not happy about extra-regulations (who would be?) and consumers might get in the beginning higher costs.
Negotiations are just beginning about this (some sources mentioned that the EU treaty should be modified to allow ECB such powers – this is a big pain for the Commission). We will see how far will the initiative gets…

PS Some background data about the European banks at the end of 2012, courtesy of the ECB website:

Table 1- EU consolidated banking data reporting population
2011 2010
Number of credit institutions
Stand-alone credit institutions 4,296 4,350
Banking groups 417 418
Credit institutions 4,713 4,768
   Domestic credit institutions 3,691 3,730
   Foreign-controlled subsidiaries and branches 1,022 1,038
Total assets of credit institutions in the sample (EUR billions)
Domestic credit institutions 35,901.58 34,638.03
of which:
   Large 26,780.48 25,742.47
   Medium-sized 8,039.59 7,822.77
   Small 1,081.50 1,072.79
Foreign-controlled subsidiaries and branches 8,916.17 8,234.19
Source: FSC

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