A new proposal from the European Commission (EC) will put authority over all eurozone banks in the hands of the European Central Bank (ECB). “Ultimate responsibility for specific supervisory tasks related to the financial stability of all Euro area banks will lie with the ECB,” reads the EC press release.

The new scheme, christened the single supervisory mechanism, will help to strengthen the Economic and Monetary Union (EMU) in the eurozone, according to the EC. “The Commission has presented proposals for a single European supervisory mechanism, a major step to a banking union. This new system, with the European Central Bank at the core and involving national supervisors, will restore confidence in the supervision of all banks in the euro area,” said the EC President José-Manuel Barroso today (September 12 ).

The main point proposed today is the granting of extra supervisory powers to the ECB or, as the EC puts it, “regulation conferring strong powers on the ECB for the supervision of all banks in the euro area, with a mechanism for non-euro countries to join on a voluntary basis.” The EC also proposed changes to the European Banking Authority to accommodate the new supervisory role of the ECB, as well as the communication of an outline of the EC banking “vision” to EU members.

The EC wants the new supervisory mechanism in place by January 2013, but intends to use a phasing in period. Thus, from the beginning of next year the ECB will have full supervisory responsibility over credit institutions, particularly if they have received or requested public funding. Next in July 2013, banks of “systemic importance” will come under the new ECB powers, while at the start of 2014, all eurozone banks will operate under the watchful eye of Europe's Central Bank.

Liam Lever, liam@romania-insider.com