18 Dec 2012

EU bank supervisor will restore trust - ECB

12:01 pm on 18 December 2012

The European Central Bank says an EU banking supervisory agency will help restore confidence in the eurozone.

The Single Supervisory Mechanism "will contribute to restoring confidence in the banking sector across the euro area", ECB president Mario Draghi told the European Parliament's committee for economic and monetary affairs on Monday.

Mr Draghi said an agreement last week by EU finance ministers to set up such an organisation meant that Europe can "end the year on a positive note".

"This is a clear demonstration that European institutions are determined to act in a timely and decisive way to complete" economic and monetary union, he said.

"The establishment of the SSM can be expected to be a key turning point in the resolution of our current challenges," Draghi said.

Europe has been in a sovereign debt crisis for more than two years.

EU finance ministers have agreed on the creation of a common supervisory agency in a key step towards a banking union which they hope will ring-fence banks in trouble to prevent future crises.

AAP reports this will allow eurozone banks to be recapitalised directly, rather than through governments, so as to avoid adding to their growing debt burden.

The ECB will be entrusted with managing the supervisory system in tandem with the European Banking Authority in London, which covers all 27 members of the EU.

From March 2014, banks with assets worth more than 30 billion euros or equal to 20% of a state's economic output, will come under the ECB's remit.

The ECB will also have the right to intervene in cases involving smaller banks, but AAP reports it is expected national supervisors will have the main responsibility in this category.