The European Commission has presented its blueprint for the path to a banking union, which is meant to help tackle the financial crisis in the EU.

In a speech to the European Parliament on Wednesday, Jose Manuel Barroso, president of the EC said, “the Commission has presented proposals for a single European supervisory mechanism, a major step to a banking union,” adding that “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.”

Mr Barroso also said in the future, “bankers' losses should no longer become the people's debt, putting into doubt the financial stability of whole countries.”

In the proposed banking mechanism, ultimate responsibility for specific supervisory tasks related to the financial stability of all euro zone banks will lie with the European Central Bank (ECB).

But national supervisors will continue to play an “important role” in day-to-day supervision and in preparing and implementing ECB decisions,” the EC's proposal states.

The Commission proposes “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.”

And also, “aligning the existing regulation on the European Banking Authority (EBA) to the new set-up for banking supervision in order to make sure that EBA decision-making remains balanced and that EBA continues to preserve the integrity of the single market.”

The EC is now calling on the European Council and European Parliament to adopt the proposed regulations by the end of 2012, together with the other three components of an integrated “banking union” – the single rulebook in the form of capital requirements, harmonized deposit protection schemes, and a single European recovery and resolution framework.

Under the EC's proposal, as of January 1, 2013, the ECB will be able to decide to assume full supervisory responsibility over any credit institution, particularly those which have received or requested public funding. As of July 1, 2013 all banks of major systemic importance will be put under the supervision of the ECB. The phasing-in period should be completed by January 1, 2014 when “all banks will be covered.”

RA