By Nicholas Comfort and Alessandro Speciale
SSM chair and vice chair are among departures at start of 2019
Shakeup comes just as supervisors have to deal with Brexit
Europe’s lenders are bracing for regime change at the region’s central bank, which will replace three of its top bank supervisors at the start of next year.
Their successors will influence whether the large banks overseen by the Single Supervisory Mechanism face less or more intervention in their business models, such as being forced to pull out of some types of activities. The new appointees will also arrive just as Brexit kicks in -- with or without a transition period -- putting extra pressure on the watchdog in case Britain’s withdrawal from the European Union disrupts the financial system.
“It’s an important decision point for the banking union,” said Nicolas Veron, a senior fellow at Brussels-based think tank Bruegel. “For such a young institution it’s an unfortunate sequence of events to have such a turnover.”
First to go will be Daniele Nouy, who chairs the SSM, which sets capital requirements for 118 banks and checks whether they’re properly dealing with risk. Her term finishes at the end of the year and can’t be renewed. Vice Chair Sabine Lautenschlaeger’s tenure ends in February 2019 and European Central Bank appointee Ignazio Angeloni finishes in March, the same month that the U.K. leaves the European Union.
Ironically, while the SSM urges banks to have a leadership-succession strategy in place, its own board appointments are complicated by the fact that governments have a say. The horse-trading between politicians will take into account a broader shakeup that includes ECB President Mario Draghi, two other top monetary-policy positions, and the next heads of the European Commission and European Council.
“We may not end up with the best person for the job because there is such a delicate balance to strike between countries,” said Hans-Peter Burghof, a professor of banking at the University of Hohenheim in Stuttgart.
After the SSM leadership is chosen by the ECB’s Governing Council, the appointments are then approved by the European Parliament and by heads of government. The SSM would like clarity on the appointments by September or October at the latest, according to a supervisory board member who asked not to be identified because the matter’s confidential.
Germany’s Lautenschlaeger is also a member of the ECB’s Executive Board, where her term runs until 2022, and she’s the obvious choice to succeed France’s Nouy, according to Veron. Still, while that would ensure some continuity, her candidacy could turn out to be an obstacle if Germany decides to push for the central-bank presidency.
Another name making the rounds for the chair is Sharon Donnery, a deputy governor at the Irish central bank who leads the ECB’s taskforce for bad loans. She also faces indirect competition from a compatriot. Her boss in Dublin, ECB Governing Council member Philip Lane, is seen as a leading contender to join the Executive Board as chief economist when Belgium’s Peter Praet steps down next year.
Italy’s Angeloni holds one of the four SSM board seats that the ECB can allocate directly, though two of the others are vacant after the expiry of Julie Dickson’s term last year and the death of Belgium’s Luc Coene earlier in 2017. The board also has appointees from national supervisors.
The new leadership will be taking on a politically charged task. Since starting work in 2014, the SSM has been criticized by investors for not solving Europe’s bad-loan problem, and by bankers and politicians who say it’s too intrusive.
“The implementation of the SSM was, and still is, a daunting task,” said Raymond Frenken, a spokesman for the European Banking Federation, which represents about 3,500 banks. “The consequences of Brexit pose another challenge. Bankers are requesting clarity and guidance from the ECB in order to prepare on time.”
Supervisors should be more transparent, giving more information to help banks decide which business opportunities are worth pursuing, according to Iris Bethge, executive managing director at the Association of German Public Banks.
The SSM should dial back some of the regulatory burden on lenders, as the U.S. is doing, said Jean Dermine, professor of banking and finance at INSEAD business school. A candidate who has worked as both a banker and a supervisor would be well-placed to do that, but such people are hard to find in Europe, he said.
They may not get their way. ECB supervisors have become more assertive and may nudge lenders to pull out of riskier investment-banking businesses, said Falko Fecht, a professor at the Frankfurt School of Finance & Management.
“Nouy showed a lot of neutrality, but that also reflects the fact that she started from scratch,” said Fecht. “The next generation may not be so hands-off, and frankly I’d like them to be tougher.”
— With assistance by Zoe Schneeweiss