EUROPEAN CENTRAL BANK BECOMES A REALITY

European lawmakers today agreed the first step in an ambitious EU banking union plan, by transferring the power to supervise the eurozone's biggest banks to the ECB in a year. Formal agreement to make the European Central Bank the "single supervisor" for big banks was agreed by 556 votes in favour and 54 against. The step, the first pillar in a wider scheme towards safer and more accountable banking, was broadly agreed in March by members of the 17-nation eurozone and Parliament but had not been put to the vote. In Riga, ECB president Mario Dragi said he welcomed the vote on what would be called the Single Supervisory Mechanism (SSM). "The ECB and the Parliament share a common purpose in ensuring proper accountability arrangements for the SSM," he said. MEPs had postponed this week's vote by 48 hours, demanding more transparency and control, including a say in approving the chair and vice-chair of the supervisory board and the possibility of launching probes into possible errors. Among other changes to the original plan is the possibility for non-eurozone nations to join as well as the strict division of ECB staff between monetary policy and supervision. Individual MEPs will also be able to question the supervisor in writing and receive a rapid reply. The European Parliament green light "is a lynchpin of a deeper economic and monetary union," said European Commission President Jose Manuel Barosso. "Now our attention must turn urgently to the Single Resolution Mechanism," he said, referring to the second pillar in the scheme for a single banking union. The resolution mechanism would give the Commission the power to shut down any of the eurozone's 6,000-plus banks even if national authorities disagreed. Banking union in effect would shift the burden of dealing with failing banks from taxpayers with new rules forcing creditors to take losses and a resolution fund created through mandatory levies on the banks. But there is scepticism in Germany about whether the mechanism is compatible with current EU treaties. The EU's Internal Markets Commissioner Michel Barnier said that "with this key piece of legislation, we are not only strengthening our banks and the financial stability of the eurozone, we are also strengthening economic integration." Saying it will be five years this week since Lehman Brothers filed for bankruptcy, triggering the biggest global financial crisis in modern history, Barnier said the supervisory mechanism was an essential part of "rules to better protect European citizens and to prevent future crises."