E.U. Banking Supervisor Hurdle Nearly Overcome

(eToro Blog) One of the biggest hurdles that the European Union’s leadership has been facing is the establishment of a single banking supervisor but it appears now that there has been a major breakthrough. The E.U. Council President, Herman Van Rompuy, announced yesterday that the leadership agreed to adopt the legal framework which would allow the European Central Bank to take on the supervisory role for the entire network of banks within the Eurozone. In so doing, funds intended to recapitalize failed banks would be injected directly into those banks, and bypass the respective government’s accounts. According to Van Rompuy, the mechanism could be operational by next year.

The banks which receive state aid would come under ECB control first, then eventually larger cross-border banks; ultimately all 6,000 banks within the Eurozone would fall under the ECB’s supervision though routine oversight would be handled by the respective national banking authorities.

German Chancellor Angela Merkel is already looking ahead to the December E.U. summit, and believes that confirmation of these actions as they relate to the banking supervisor, along with resolutions to the problems in Greece and Spain will go a long way to restore investors’ confidence. Germany’s reticence over a banking supervisory role for the ECB had actually been one of the hurdles that needed to be overcome; the German Finance Minister had sought to limit the ECB’s supervisory scope, among other things.

The ECB’s taking of the helm as the E.U. banking supervisor is key to ensuring that bailout funds from the ESM are directly injected into the troubled banks. When the ECB will assume the role is still in question, however, with the French hopeful it will happen within the first quarter of the new year, but the German’s are doubtful of it.

Market players appear equally doubtful and refuse to take the bait; the EUR/USD is trading lower at 1.3051 and sentiment on OpenBook is bearish by 64% to 36%. OpenBook guru albynet who is from Italy earned 16% on a short position in the pair, and has a currently open short just ahead with a 2% gain; that position is targeting 1.3038. The guru as of this writing has 228 copiers and 1,050 followers. Realized equity for the last week is at -0.2% but turns into positive territory beyond with 11.9% for last month, 16% for last quarter and 25.2% over the past 6-months.

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