ECB chief backs Central Bank in regulatory battle

The president of the European Central Bank (ECB) has given his strong personal backing to the Central Bank in its battle to keep its regulatory functions. But the Tanaiste, Ms Harney, has indicated that the Government decision would not be swayed in any way by the remarks.

At a briefing for Irish journalists in Frankfurt yesterday, Mr Wim Duisenberg said he was strongly in favour of the Central Bank having supervisory and regulatory functions. "In my personal view, I am strongly in favour of leaving supervision in national hands," he said. "I am also strongly in favour of having supervision and regulation in the hands of the Central Bank of Ireland. "I am and always have been in favour of having the regulation of the entire financial sector concentrated in one authority and in my view that authority is the Central Bank." Last night, the Tanaiste responded sharply.

"I agree with the president of the ECB that supervision is a matter for national governments. "That being so, it is somewhat surprising the president should go on and offer a view to what the Irish Government should be doing."

The ECB's role in supervision is very limited. However, there is a clause in the treaty which set up the ECB which mentions it as a possible agency to oversee the supervisors.

In some countries, this is the Central Bank and in others a separate state agency.

The intervention of Mr Duisenberg will be welcomed by the Central Bank, which has been fighting to maintain its supervisory responsibilities over recent months. The McDowell report, published before the summer, recommended that a new greenfield agency be set up to supervise the banks and other financial institutions.

However, the Tanaiste and the Minister for Finance, Mr McCreevy, have yet to bring a memorandum to Government recommending a course of action.

Officials in their Departments have differed over the best course of action, with Mr McCreevy's officials believing that the safest course is to leave regulation with the Central Bank.

Officials at the Department of Enterprise, Trade and Employment, the Director of Consumer Affairs and the committee's chairman, the new Attorney General, Mr Michael McDowell, disagreed. A compromise was put forward by the Taoiseach's Department, but so far at least that has not proved acceptable to all parties. It is not clear when the Ministers will bring the issue to Government.

Earlier this week, Mr McCreevy would say only that the matter would be brought to the Cabinet's attention "some time".