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Europe's bank moguls push back against perceived ECB intrusion

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European bank bosses are pushing back against what they see as increasingly intrusive behavior from their regulator, the European Central Bank.

Chairs and senior executives have contacted the supervisor over its stance on a range of issues — from wanting to have a presence in bank boardrooms to increasing capital requirements and restricting shareholder returns — which bankers view as regulatory over-reach, according to people familiar with their thinking.

Lorenzo Bini Smaghi, chair of France’s Société Générale and a former ECB board member, wrote to the central bank in October questioning the need for its officials to be present at bank board meetings. He also called for a meeting between top bank chairs and Andrea Enria, the head of the financial supervision unit.

Bini Smaghi’s intervention comes as other banks have also become “more vocal . . . criticizing our processes”, one person familiar with the ECB’s position acknowledged. Executives have increasingly taken issue with deeper questioning from the regulator over internal processes and decisions taken by managers on dividends and pay.

“To my knowledge, no other authority in the major advanced economies attends board meetings and committees in its supervisory activity,” Bini Smaghi wrote in an email, which was first reported by Bloomberg, and sent to Ramón Quintana, who supervises large international banks.

Supervisors had taken such measures in the past “with apparently very little benefit and serious concerns raised by the supervised entities”, he added.

The message was part of the bank’s ongoing dialogue with the ECB over its supervision.

Bini Smaghi and SocGen declined to comment.

Some officials at the ECB were surprised by Bini-Smaghi’s missive, saying their supervisors had been attending the board meetings of some banks for several years. Officials say the practice allows supervisors to check the quality of governance and they reject the idea that it allows them to influence a bank’s decisions. “What do they have to hide?” one official said.

The ECB declined to comment on the email.

But the pushback echoes growing frustration within some European lenders in recent years over the supervisor’s methods and what some perceive as its over-reach. That includes the ECB’s decision to ban banks from handing out dividends during the coronavirus pandemic in 2020 for fear they could be weakened during the health crisis.

Banks were likely to use an upcoming review of the single supervisory mechanism — launched in 2014 in the wake of the eurozone debt crisis — to argue for a change in approach, the person familiar with the ECB’s position said.

“We’re not denying there could be some areas of efficiency,” the person said, adding that the ECB’s supervisory arm has already convened a team of experts to evaluate its supervisory processes and given them a “clean sheet” to look at how it operates.

The ECB is “open to dialogue and discussion” on processes but not on becoming a “less demanding supervisor”, the person said.

One top executive at another European bank said the ECB was not intervening with requests to attend board meetings across the sector, but taking a more discretionary approach.

“They used to handle all banks in the same way. Now they’re putting banks in different categories,” the executive said, adding that the supervisors were zooming in on some in particular.

The chief executive at a third European lender said relations with the ECB were likely to become more strained in the coming year.

“We are getting conflicting messages out of the ECB,” he said. “At the top level, we are told we should be pursuing consolidation. But two or three levels down, they are telling us we need to focus on balancing the books and being more conservative.

“The ECB is becoming much harder with everybody [and they] are likely to get tougher as we head into recession.”