German bank files suit to avoid ECB monitors

A regional German bank has filed a suit to avoid being supervised by the European Central Bank, becoming the first lender to take issue publicly with the central bank's expanded powers.

In November, the ECB replaced national authorities as the entity responsible for directly supervising 123 of the largest banks across the eurozone, as part of an effort to improve supervision in the wake of the financial crisis.

Landeskreditbank Baden-Wurttemberg, a development bank in southern Germany, said that while it agreed with the aims behind the ECB's new role, it did not believe it should come under the central bank's supervision, and had filed a lawsuit with the European Court of Justice to try to reverse this.

The ECB has a number of criteria for deciding whether a bank should fall under its purview. These include having assets of more than €30bn, playing an important role in a particular EU state, or engaging in significant cross-border activities.

L-Bank, which had assets worth €70.68bn in 2013, the last year for which figures are available, said that this "mechanical approach" was not appropriate in its case, arguing that it had a "legally enshrined remit to conduct low-risk development business", and benefited from a "direct guarantee from the state of Baden-Wurttemberg".

"Supervision under the terms of the SSM [Single Supervisory Mechanism] is associated with significant bureaucracy and costs. These costs impact on the funding available for providing, for example, low-interest loans for housing development, support for new business start-ups, and finance for [small businesses]," the bank added.

The ECB said that it had received notice of the court case filed by L-Bank, but "does not comment on cases pending in court".

The move by L-Bank, first reported by the Wall Street Journal, echoes broader concerns among smaller lenders about the costs of ECB supervision.

The ECB is required to fund its supervisory activities by levying fees on the banks in the countries that participate in its supervisory framework.

For 2014 and 2015, about 85 per cent of these fees are expected to be borne by the 123 large banks under direct ECB supervision. The remaining 15 per cent are set to be paid by the 3,500 or so other banks in the eurozone. Beyond its fees, complying with the ECB's reporting requirements can also cause banks significant outlay.

Although L-Bank is so far the only institution to go to the ECJ to seek exemption from the ECB's supervisory regime, other banks have also taken issue with their inclusion among its direct supervision.

According to a report published by the ECB this week, three banks have asked the central bank's internal review board - the Administrative Board of Review - to check whether they should be classified among the 123.

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