European lawmakers expand power of Central Bank

European Union legislators on Thursday overwhelmingly approved a law that puts about 150 of the euro zone’s largest banks under the scrutiny of the European Central Bank.

The vote on the legislation, which contains provisions that would give the European Parliament greater oversight of the E.C.B. when the bank assumes its newly won authority, is an important but not final step in a winding process that began in early 2012, during one of the most fevered periods in the euro zone financial crisis.

On the heels of the approval, the so-called Single Supervisory Mechanism is expected to start work during the autumn of 2014 after the E.C.B. conducts a “stress test” on the lenders coming under its aegis. The idea is that the central bank would do a better job than national supervisors of nipping financial problems in the bud so that governments do not need to resort to bank bailouts that destabilize the euro and penalize taxpayers.

The approval also was the first step in a multistage process toward a broader, pan-European vision of banking being referred to as a banking union. The next stage of that effort — creation of a single system for shutting down or restructuring banks — is under way. But progress has been slowed by the reluctance of Germany to commit to a unified banking system that could lead to euro zone member nations being responsible for one another’s debts.

Even so, Thursday’s approval was among the “most important votes of this parliamentary term,” Michel Barnier, the European Union commissioner overseeing financial services, told the assembled lawmakers after the vote. The law will help to “improve and restore confidence our citizens have in our system, as well as the confidence of the rest of the world in our system,” he said.

Lawmakers had delayed the vote, originally scheduled for Tuesday, amid demands for more power to oversee the E.C.B.

The approval came only after the president of the parliament, Martin Schulz, told members that Mario Draghi, the president of the central bank, had agreed to “strong parliamentary oversight” resulting in “a high degree of accountability.”

The parliament said the E.C.B. had agreed to share detailed records of meetings of the future bank supervisory board.

The European Parliament also would share power with E.U. governments over the selection of the head and the deputy head of the supervisory board. And the parliament’s influential economic and monetary affairs committee would have the right to summon the supervisory board’s head for hearings.

The demands by the parliament, the democratically elected arm of the European Union, were signs of its growing assertiveness.

The new Single Supervisory Mechanism will be compulsory for banks operating in the euro area. Other E.U. countries that are not part of the single currency bloc can still opt to put their banks under the system.

The lawmakers, meeting in Strasbourg, France, voted The parliament vote in Strasbourg, France, was 559 in favor of making the E.C.B. the single supervisor. Sixty-two members voted against the law and 19 abstained..

In a separate development on Thursday, a senior European Union court official said in an opinion that one of the rules devised by E.U. officials to stem the euro crisis should be rolled back.

Niilo Jaaskinen, an advocate-general at the European Court of Justice in Luxembourg, said the agency based in Paris that oversees the European Union’s financial markets should not be allowed to ban so-called short-selling in any member state. The British government had challenged the rules, saying they went beyond the jurisdiction of the European Securities and Markets Authority.

The opinions handed down by advocates-general are not binding on judges. But judges do follow the advice in a majority of cases when they make a definitive ruling several months later.