Michel Tison

Do Not Attack the Watchdog! Banking Supervisor’s Liability after Peter Paul

WP 2005-02

Banking supervisory liability has recently received much attention both from supervisory authorities themselves as from academics, thanks to the preliminary proceedings brought by the German Supreme Court before the European Court of Justice (ECJ) in case C-222/02, Peter Paul. In its judgement of 12 October 2004, the ECJ has refused to apply Francovich type Member State liability to the obligations incumbent on Member States to exercise a prudential supervision over credit institutions pursuant to the various EU banking directives.
After providing a general overview of banking supervisory liability in the laws of different EU Member States, we analyse and proceed to a critical assessment of the Peter Paul judgment. We submit that the Court has been too restrictive in refusing to find in prudential supervision a clear depositor protection oriented dimension. In our view, the Court has overreacted to the potential financial consequences of holding the State liable for negligence in the exercise of prudential supervision. We demonstrate that Francovich type liability allows to strike a fair balance between the rational expectations from depositors as to the quality of supervision on the one hand, and the need to take account of the complicity and discretion of the prudential supervisor in the assessment of liability on the other hand.