Klaus: EU's banking union looks to curb central banks' powers

Prague, Oct 29 (CTK) - Czech President Vaclav Klaus and vice-governor of the central bank Vladimir Tomsik said that the aim of establishing a single banking supervisor in the EU is placing restriction on the powers of central banks.

The proposals also seek to change the current setup of the union, Klaus said.

"A banking union is a nonsense. The sole aim is to cause a change of the status quo in all areas," Klaus said at a seminar of the Centre for Economics and Politics in Prague yesterday.

"I am absolutely certain that a banking union aims to limit the powers of the national central banks," Tomsik said.

It is just a new channel for financial transfers in the EU, according to Klaus. "Moreover, these would be transfers without a clear political decision and out of public control," he said.

The proposals may harm financial stability and the health of domestic banks, Tomsik said. They may even spread the debt infection in the EU, he added.

The Czech Republic must take part in a discussion and the Czech National Bank (CNB) must retain a right to reject a change of a subsidiary of a foreign bank to its branch, which would allow central banks to prevent a potential outflow of money from domestic banks. A foreign bank branch is subject to supervision by a central bank in a country where the bank is headquartered, that is it is not supervised by the CNB, said Tomsik.

It is crucial to prevent withdrawal of liquidity and capital from the country, he said.

"The balance between powers and responsibility (of central banks) must be maintained," Tomsik added.

The Czech government and members of the Chamber of Deputies (lower house of parliament) do not agree with the banking union plan.

Prime Minister Petr Necas said that the Czech Republic is ready to veto the proposal. Foreign banks own 94 percent of domestic banks in the country.