Ireland’s frontrunner for EU bank watchdog job faces parliament grilling

Mario Draghi’s preferred candidate to head the euro zone’s banking supervisor will try to win over EU lawmakers on Tuesday and overcome an important hurdle in the race for one of the bloc’s most coveted jobs.

Irish Central Bank deputy governor Sharon Donnery and two other contenders will be interviewed by MEPs as part of a process to choose the successor to Danièle Nouy as chief of the Single Supervisory Mechanism (SSM) when her five-year term ends in December.

The competition will not just determine who will preside over the ECB’s banking watchdog and the health of the euro zone’s largest lenders. It will also weigh upon a string of upcoming EU appointments in the next 12 months that will culminate with the appointment of Mr Draghi’s successor in October 2019.

While the ECB has no official position, Ms Donnery is seen as a favourite after receiving Mr Draghi's private backing. But two other contenders have emerged: Robert Ophèle, chair of the Autorité des Marchés Financiers, France's markets regulator, and Andrea Enria, head of Italy's European Banking Authority.

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“It will be a close call,” an EU diplomat said.

After the hearings, the MEPs sitting on the Committee on Economic and Monetary Affairs will issue their recommendations to the ECB’s 25-member governing council, who in turn will hold a secret ballot in early November.

Veto

Typically, ECB insiders are reluctant to go against the opinion of the EU parliament, which has the right to veto the ECB’s nominee. The appointment is expected to be finalised in early December.

Ms Donnery should win the EU parliament’s support “if she performs well at the hearing”, an EU official said. In addition to Mr Draghi, she has the backing of Berlin, which is keen for another woman to replace Ms Nouy, diplomats said.

But she is facing criticism from MEPs from southern Europe who fear the Irish central banker would be too tough on the region’s banks. Ms Donnery has pushed hard with Ms Nouy to force banks to rid their balance sheets of non-performing loans. The so-called NPL problem is particularly acute in member states with weaker banking systems, such as Italy. Other critics argue that Mr Ophèle and Mr Enria have both headed their respective organisations, while Ms Donnery is relatively untested.

“She has touched the hottest of hot potatoes and this is what is causing the problems with parliament,” said one supporter of Ms Donnery.

The supporter added: “Parliament asked for the ECB to appoint more women in senior roles. We now have a very highly qualified female candidate for the position, but it seems that this push for more women is now being forgotten.”

Another issue for Ms Donnery is that Paris is making a strong push to install Mr Ophèle, who sat on the SSM’s supervisory board until August 2017. France is keen to get an upper hand on banking supervision and resolution in case of a worsening Italian crisis.

Dublin itself has mixed feelings about whether it is in Ireland’s interest to secure the top job at the SSM. Ms Donnery is highly rated in her home country, but so is her boss. Central Bank governor Philip Lane’ s chances of succeeding Peter Praet as the ECB’s chief economist next June would diminish should his deputy be picked for the SSM.

If Ms Donnery was unsuccessful, then Dublin could also use that to bargain for the chief economist role, or the chair of the eurogroup, for Minister for Finance Paschal Donohoe.

But this is not a view widely shared in Berlin, where many believe Mr Ophèle’s success would scupper the chances of Banque de France governor François Villeroy de Galhau and ECB executive board member Benoît Cœuré to succeed Mr Draghi.

Instead, they believe a French SSM chief could raise the chances of Bundesbank president Jens Weidmann – a candidate to whom Paris has in the past fiercely objected.

Meanwhile, Mr Enria has had to deal with the political fallout from banking stress tests, which some in Italy viewed as too harsh on the country’s banks. That has not made him popular in Rome.– Copyright The Financial Times Limited 2018.