ECB will take time to bed in as bank watchdog: Bundesbank's Dombret

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The euro zone's three-month old banking super-regulator won't get everything right straight away as it directly supervises big, complex lenders for the first time, a senior official at Germany's Bundesbank said on Friday.

The European Central Bank (ECB) became direct supervisor for 120 banks such as Deutsche Bank and Societe Generale from Nov. 4 in the biggest leap in European financial integration since the single currency was launched.

Andreas Dombret, an executive board member of the German central bank, said he was optimistic ECB supervision would work well, though the new system, born from the currency area's debt crisis, had been put in place in a short time.

"We should not expect everything to run smoothly from day one," Dombret told a seminar in London. "It will certainly take some time before every detail is worked out."

The new ECB watchdog will introduce a "level of neutrality" to prevent national supervisors treating their domestic big banks more leniently, Dombret said.

The rest of the euro zone's roughly 3,300 lenders will be supervised by national watchdogs on a day-to-day basis, though the ECB has powers to intervene.

Some involved have concerns that with so many supervisors making decisions which are often specific to certain countries' banks, too many could abstain in votes that need to be taken or simply agree to whatever the central body, the SSM, recommends.

Dombret said national regulators like the Bundesbank have not dug their own grave and still have a key role, but will have to adopt a broader outlook. "National supervisors will have to take a more European perspective," he said.

The new ECB regulator will have 1,000 staff in Frankfurt, too few to keep a close eye on all banks in the euro zone, and will have to work with national watchdogs, Dombret told the seminar, held at the Chatham House international policy institute.

"There is no other option but to rely on national supervisors," he added. "The first few months of our joint work is rather encouraging, but we are early in the process."

The ECB's supervisory focus at the beginning was on completing a balance sheet review and stress test of the banks it supervises to root out any problems early on.

The watchdog is now expected to turn to longer-term issues such as the sustainability of a bank's business model, and the accuracy of internal models used to measure risks from loans to calculate capital requirements.

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