The European Investment Bank has agreed to start talks to become independently supervised by the European Central Bank after EU governments demanded sweeping governance changes at the lender after Brexit.
A group of seven EU member states — including Denmark, Sweden and the Netherlands — are pushing the EIB to overhaul its internal operations and introduce new supervision as a condition of governments’ putting more capital in to the bank after the UK’s departure from the EU. Britain, which provides €39bn of the lender’s €243bn capital base, is one of the largest backers of the EIB, which is owned by EU member states.
In June Werner Hoyer, EIB president, wrote to EU member states asking them to fill the Brexit gap by increasing their capital contributions. The capital-raising exercise is considered crucial by some governments — including France and smaller central and eastern member states — to maintain the EIB’s triple-A credit rating.
But Brexit has sparked a debate among EU finance ministries about how best to maintain the EIB’s financial firepower, with a group of governments urging reforms at the lender in return for more taxpayers’ money. In the face of calls from capitals in The Hague, Copenhagen and Stockholm, the EIB has agreed to a series of governance changes, the biggest of which will include steps to introduce independent supervision of its lending operations by the ECB.
A letter from Olaf Scholz, Germany’s finance minister, to Mr Hoyer and seen by the Financial Times “strongly welcomed the improvement to the Bank’s governance and supervisory framework” agreed at an EIB board meeting on July 17.
The EIB’s role in funding projects such as road building in France or energy networks in eastern Europe has grown rapidly since the financial crisis. But the lender is not subject to external bank supervision like normal banks.
Instead, its projects are audited by the European Court of Auditors, the EU’s independent external auditor. As part of an agreement last month, the EIB’s internal audit committee will propose a new supervisory structure for the bank involving the ECB’s supervisory unit — the Single Supervisory Mechanism — and supervision experts from non-eurozone EU member states, according to the letter dated July 24.
“I would encourage you to use the intensified contacts with the relevant bodies of the ECB and the SSM with a view to working out an appropriate supervisory framework for the future,” wrote Mr Scholz.
A paper from seven EU governments in June demanded that the EIB come up with a “clear supervisory concept” — hinting at concerns over the lender’s status, which leaves it outside most traditional forms of financial oversight. At a finance ministers’ meeting in June, Mr Scholz also suggested the EIB appoint a “chief risk officer”, according to a diplomat familiar with the talks.
One EU diplomat said the EIB could not “carry on business as usual after Brexit”. The bank’s last capital increase was in 2013. The Luxembourg-based EIB said it was “discussing the impact of the departure of the UK on its structure and governance and the adjustments that might be possible and desirable”.
“Member states are producing several different inputs into a discussion that is fast evolving, despite the great number of aspects to be considered,” the bank said. Mr Scholz’s letter also hinted at concerns the EIB must not lose its triple-A credit rating after Brexit. “The remit of the Bank has enlarged to an unprecedented scale, alongside a considerable increase in its risk profile,” wrote the German finance minister.
S&P Ratings, which awards the EIB its highest level of credit status, has said an orderly Brexit should not affect the bank’s rating as long as EU governments “demonstrate high level of support to the EIB”. The EIB added that all EU governments had “expressed strong support” for a Brexit capital increase. The reforms are due to be discussed by EU finance ministers at a meeting in Vienna next month.