ECB told to double its manpower

(Financial Times) -- The European Central Bank will need to more than double its manpower and hire around 2,000 bank supervision staff to put the eurozone's banking union into practice, according to a confidential study for the ECB.

The consultancy report, commissioned by Mario Draghi and the ECB executive board and submitted last month, recommends a rapid build-up so Frankfurt has the resources and clout to fulfil properly its supervision role and protect its reputation.

EU leaders have set their sights on banking union as a way of tackling one of the structural flaws that helped to spark the eurozone crisis. The need to restore market confidence in the single currency gained renewed urgency on Monday when a months-long rally came to an abrupt halt. Investors pulled back amid a political storm in Madrid and as Silvio Berlusconi staged an electoral fightback.

The report by Promontory Financial Group, according to two people who have seen it, offers a stark insight into the colossal scale of the undertaking for the ECB when it assumes its new powers in early 2014. A person close to the ECB noted the findings were not binding.

Several recommendations in the blueprint, if adopted, would bolster Frankfurt's sway over existing national supervisors. This is a highly sensitive issue given the risk of a power struggle erupting when the ECB takes over as the bloc's top bank watchdog.

Promontory suggests national representatives on the supervision board should be asked to abstain on issues directly relating to their national banks, so decisions are more objective and pan-European.

There is also uncertainty over where supervision power would rest within the ECB. Promontory suggests the effective "chief executive" of the supervision arm -- to whom all 2,000 staff would report -- should be the ECB executive board member who serves as the vice-chair of the supervision board.

This raises questions over the role and institutional muscle of the appointed chair, a newly created position for a non-ECB board member. The frontrunner is Danièle Nouy, a senior official at the Banque de France.

Key elements of the supervision reform are still under negotiation with the European Parliament, which is pressing for a strong and accountable ECB. Sven Giegold, a German MEP leading the talks for the parliament on the reforms to create a single bank supervisor, said the Promontory report underlined why parliament should vet the appointment of the chair and vice-chair.

"It is outrageous for us to put an experienced French woman in charge of the whole thing only to find that it is someone else who has all the power," he said.

The ECB plans remain in flux. So far senior officials have played down its expansion plans, saying in December that it will probably need an extra 500-1000 employees.

Promontory, by contrast, suggests 1,997 extra staff need to be hired by 2017, by which time the ECB will be supervising around 130 banks directly. By comparison 1,500 people work on bank supervision in all Germany's national regulators.

"The figure of 2,000 is more or less what is needed, so it is worrying to hear the ECB talking about just 500," said Mr Giegold. "Having too few staff will create dangerous conflicts of interest and leave bank supervision under national control." The ECB declined to comment.

Promontory is a financial sector consultancy founded by Gene Ludwig, a former US regulator. It was given access to ECB documents and interviewed board members and staff for the report, which runs to hundreds of pages. The report has yet to be discussed by the ECB's governing council.

© The Financial Times Limited 2013