© Martin van Vliet
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In my point of view, the main lesson from the crisis is that in the future we should try to prevent taxpayers from saving banks. One element of the new rules in fact is that there will be bail-in of investors in banks, thus investors have to contribute to saving banks, which run into trouble. The element of the single resolution funds, which has been discussed recently in Europe, suggests that banks have to finance rescue funds, with which financial institutions that run into troubles can also be helped. Thus, I suppose, the first step is that in the future investors in banks will also have to contribute to saving banks, and the second step is that banks, which would require also money from resolution funds, will indirectly get the money from other banks. To my mind, it is still preferred possibility than national taxpayers pick up the bill.
The ECB will have direct oversight over 130 banks in the Eurozone starting from November 2014. Considering that the primary purpose of any central bank is price stability, and the fact that Germany recently expressed concerns regarding providing the ECB with too many responsibilities too quickly, do you believe it would have been more viable to establish a separate independent supervisory body for the union?
Some people are quite concerned about potential tensions between on the one hand implementing monetary policy as a central bank, and on the other hand supervising the banking system. However, I do not think that this is the issue to worry about as long as the process is organized in a decent way. If we look at the United States, for example, the Federal Reserve System is responsible for supervising as well as implementing monetary policy. Besides, financial stability already is an indirect responsibility of central banks. They can influence financial stability by providing the liquidity, which is part of the monetary policy. Thus, at the end of the day I think, there are a lot of talks about potential issues and tensions, but am not that concerned.
The EU banking union will encompass all banks in the Eurozone. Even though the U.K. in not in the Euro block, do you believe that the U.K. should also be a part of the union considering that London is one of the key financial hubs?
One could argue that an important building block for a well-functioning monetary union is a banking union. As concerns the countries that share the Euro, one could certainly make a case that the banking union is needed, and in fact we are taking steps towards it. Obviously, some European countries are part of the EU, but they do not have the Euro and it does certainly look like that they are on the verge of introducing Euro. Hence, from that prospective, if we need to strengthen the Eurozone, fix the fundamental flaws of the currency bloc, establish a banking union, certainly the countries that have the Euro, should be a part of this. Given that the U.K. is not intent on introducing Euro, for my point of view, it does not make sense for Britons to also undertake measures towards the banking union. Thus, if a country is not a part of common currency, then it is unreasonable for it to take steps on the road to the banking union.
One of the issues faced by the ECB in creating the banking union is the national differences in how bad debt is classified, which cripple its probe into the health of Euro-area banks. Using a strict definition of bad debt could threaten banks in countries hit hardest by Europe's debt crisis, while a laxer rule may not reveal the true condition of the region's financial system. How severe is this problem to your mind and how could it be addressed?
I suggest that if there is one supervisor in Europe, and it is going to be the ECB, then obviously it makes sense to implement Asset Quality Review and stress tests using one definition. Thus, there will be a clear overview, allowing making a comparison across countries. If there indeed are countries, where there are some questions marks regarding what the true level of non-performing loan is, then unified definition will help to get a more clear and objective picture. If certain countries have problems then, because all of a sudden it turns out they have even higher non-performing loans, I suppose, that is the price for transparency and comparability. I believe that it is a good thing, since at least we get a more harmonized definition of non-performing loans, thus we can make a fair comparison across countries.