EU to complete framework for single bank supervisor

European Council President Herman Van Rompuy speaks at a news conference at the end of the first session of a two-day European Union (EU) leaders summit in Brussels, Oct 19, 2012. [Photo/Agencies]

BRUSSELS - European Council President Herman Van Rompuy said early Friday that the European Union (EU) leaders had reach a goal of agreeing on a legal framework for a single European bank supervisory body by the first day of 2013.

"The urgent element now is setting up a single supervisory mechanism to prevent banking risks and cross-border contagion from emerging, and that's why the European Council called tonight for swift progress, with the objective of agreeing on the legislative framework by Jan 1, 2013," Van Rompuy told a press conference after the EU leaders finished a 10-hour discussion at their two-day summit.

"Once this is agreed, the single supervisory mechanism could probably be effectively operational in the course of 2013," he said.

Building a single banking regulator is a crucial step in breaking the vicious circle between the sovereign debt and banking crises. However, many details of the system have remained controversial, especially concerning whether a joint supervisor will be accompanied by a Europe-wide bailout fund to directly recapitalize ailing banks.

While some EU members like Spain and France, as well as the European Commission and the European Central Bank (ECB), argued for putting the new system in place no later than Jan 1, Germany and a few other countries had been urging caution.

Challenges also arise from non-eurozone countries as the ECB, which only governs eurozone member states, is expected to serve as a core role in the supervisory system.

Finnish Prime Minister Jyrki Katainen told reporters as he arrived for the summit Thursday that "there are some practical challenges still, for instance, how to integrate the non-eurozone countries into the arrangement, and this is very important for Finland."

Van Rompuy also stressed the need to ensure a level playing field between member states which have taken part in the supervisory system mechanism, and those that haven't been "in full respect of the integrity of the single market in financial services".