The European Union's finance ministers took a first major step towards a banking union early Thursday by agreeing to give the European Central Bank broad supervisory powers.
The single supervisory mechanism (SSM) will be composed of the ECB and national competent authorities, the Council of the EU said in a statement after after a meeting of EU finance ministers that lasted more than 14 hours into early Thursday morning.
"The ECB will assume its supervisory tasks within the SSM on March 1 2014 or 12 months after the entry into force of the legislation, whichever is later, subject to operational arrangements," the statement added.
Under the agreement, "the ECB will be responsible for the overall functioning of the SSM," and "have direct oversight of eurozone banks, although in a differentiated way and in close cooperation with national supervisory authorities."
National supervisors would remain in charge of tasks not conferred on the ECB, for instance in relation to consumer protection, money laundering, payment services, and branches of third country banks, the statement said.
The existing supervisory body of all EU banks would also have a role to play. "The European Banking Authority (EBA) would retain its competence for further developing the single rulebook and ensuring convergence and consistency in supervisory practice."
Non-eurozone EU member states wishing to participate in the SSM will be able to do so by entering into close cooperation arrangements,the Council said without specifying which countries among the 10 EU countries that don't share the euro will take part in the new system.
Speaking to reporters after the meeting, French Finance Minister Pierre Moscovici hailed the deal as "real progress that opens up interesting possibilities" and "a cornerstone for the resolution of the three-year-long euro-zone crisis."
To address German concerns over possible conflicts of interest arising from the ECB serving as both bank supervisor and monetary policy maker, the finance ministers agreed that "the ECB's monetary tasks would be strictly separated from supervisory tasks," according to the statement.
"To this end, a supervisory board responsible for the preparation of supervisory tasks would be set up within the ECB."
The deal also accommodated the concerns of non-eurozone countries wishing to join the SSM by granting them "full and equal voting rights" on the supervisory board.