The European Central Bank said today euro zone central banks should maintain a key role in banking supervision. It said their close contacts with commercial banks were crucial for crisis-prevention.
The ECB said its governing council had reassessed the involvement of central banks in financial supervision in response to the recent plans by some euro area countries to reorganise their supervisory institutions.
Last month the ECB criticised the German government's plan to merge banking, insurance and securities market supervision into a single independent institution, apparently sidelining the Bundesbank.
A 10-page ECB position paper released today argued central banks were better positioned than proposed new universal regulators to detect risks to financial stability quickly because of their role in overseeing payment systems.
"The introduction of the euro weakened the arguments in favour of a separation of prudential supervision and central banking activities and strengthened the argument for combining them," the ECB paper added.
At the very least national central banks should be granted wide-ranging operational involvement in prudential supervision, possibly linked to other agencies through joint decision-making bodies, the central bank said.