Leading German bankers clashed over plans to give the ECB new supervision powers on Tuesday, with the co-head of Deutsche Bank saying oversight would only work if the central bank was allowed to monitor a broad range of banks, not just Europe's biggest.
The comments by Juergen Fitschen at a banking conference in Frankfurt highlighted a major divide in Germany, Europe's biggest economy, over the scope of the ECB's new powers.
Like Fitschen, the European Commission wants the central bank to take responsibility for monitoring a broad swathe of banks. But the German government and the country's smaller banks are pressing for a more limited remit, focused only on those banks deemed "systemically relevant".
The row has burst into the open a week before the European Commission unveils new proposals for creating a "banking union" in Europe, a step which is seen as vital for breaking the link between failing banks and indebted governments.
Fitschen said it was illusory to believe that the largest banks like Deutsche were automatically the most important, noting that Spain's Bankia had not been on the radar of international regulators, but ended up becoming a national problem for Spain and the broader euro zone.
He also criticized smaller German savings and cooperative banks which have argued they should not fall under the umbrella of a European supervisor, and instead remain regulated on a national level.
"If we in Germany argue that we are different, we invite other countries to also argue for exemptions," Fitschen said.
Georg Fahrenschon, president of the association of German savings banks, hit back at Fitschen, telling the conference that saddling the ECB with hundreds or even thousands of banks to monitor would be onerous and counterproductive.
"Sometimes I get the impression that the whole exercise is designed to unload so much routine work onto the ECB so it no longer has the time or capacity to properly scrutinize the really dangerous institutes," Fahrenschon said.
He also expressed concern that a common supervisor was a step on the path to a pan-European deposit guarantee scheme that would end up penalizing strong institutions.
"The word banking union masks plans for a redistribution mechanism, whereby solid institutions prop up weaker lenders," Fahrenschon said. "It cannot become a life insurance policy to exacerbate the too-big-to fail problem."
A pan-European banking system should only come into force once national rescue mechanisms and national taxpayer funds to rescue banks had been exhausted, he said.
Speaking at the same banking conference, Hans-Peter Keitel, president of the Association for German industry BDI, appealed for German banks to find a 'common voice' on banking regulation.