. The European Parliament has just confirmed the appointment of the Bank of France’s Danièle Nouy as the first head of the European Central Bank’s new supervisory board.
The announcement comes less than a month before the ECB takes over direct supervision of some 130 banks, representing more than 80% of eurozone bank assets, leaving only smaller national banks under the jurisdiction of local supervisory agencies. Nouy (with whom I have worked) is a knowledgeable and capable supervisor, equipped with a formidable combination of determination and charm. She will need all of these attributes and more to make Europe’s new banking system function efficiently.
The ECB was chosen as the Single Supervisory Mechanism, despite the wafer-thin legal basis (an ambiguous clause in the Lisbon Treaty) for its new responsibilities. When the Lisbon Treaty was signed, Germany was wholly hostile to giving the ECB such a role. But no one wanted to contemplate the monumental task of framing a new treaty to establish an institution with the needed authority.
To borrow the philosopher Isaiah Berlin’s famous taxonomy, a supervisor is like a fox; it knows many small things, is flexible, and constantly adapts its survival strategy. A successful central bank is more like a hedgehog; it knows one big thing – that it must remain focused on low inflation. Slow and predictable decision-making is a virtue for such a creature, but it is maladapted for the fast-moving and complex world of twenty-first-century banks.
So the real challenge facing Nouy in her new role at the ECB is to teach the hedgehog new, fox-like tricks. Ideally, she would be aided by a revised decision-making structure, with a new seat of authority able to support the supervisory teams with fast rulings. But the need to avoid treaty amendments rules this out.
One hopes that the new supervisory board can grow into its role – and that the ECB Governing Council will give it the space to do so. The future of Europe’s banking system depends on it.
Source: Project Syndicate,by Howard Davies. The first chairman of the United Kingdom’s Financial Services Authority (1997-2003). He was Director of the London School of Economics (2003-11) and served as Deputy Governor of the Bank of England and Director-General of the Confederation of British Industry.
