ECB chief downplays concern over bank oversight

European Central Bank president Mario Draghi said his institution had the competence to supervise the euro region's banks and sought to allay concerns that it might be overburdened by the task.

"Some observers have suggested that the presence in the same institution of monetary policy and supervisory decisions can lead to excessive burdens, a potential confusion of roles and/or distorted incentives," Draghi said in a speech in Frankfurt on Friday. Though those concerns "must be taken seriously," building a single supervisor around the ECB "is the only pragmatic" option "in the present circumstances," he said.

A single supervisor for all 6,000 euro-area banks under the auspices of the ECB is a key plank in efforts to create a banking union and put the currency bloc on sounder footing. Germany's Bundesbank has raised concerns about whether the ECB's new role will compromise its ability to control inflation, and there have been calls for the ECB to supervise only the biggest banks.

Draghi said "all banks established in participating member states would in principle fall within the remit of the single supervisor," and he stressed the need for "rigorous separation of monetary and supervisory policies."

"We are taking this issue very seriously and we have envisaged ways to address it," he said. "The ECB has the advantage of having a very clear goal of price stability, expressed in a transparent and measurable way. This objective has never been compromised in the 14 years of the euro so far and it will not be compromised in the future."

Though the ECB is scheduled to assume its new powers on Jan. 1, Draghi said it must take "all the time needed" to implement the single supervisor well.

"What is essential is to have the legal basis as soon as possible, ideally on [Jan. 1], so that preparations can begin," he said.

A single supervisor is a prerequisite for the euro area's rescue fund to start directly aiding troubled banks.