Deal closer on power to fire EU bank executives

European Union lawmakers and national officials have reached a tentative agreement on plans to give regulators the power to fire executives of ailing banks.

Regulators would be handed sweeping powers to parachute in “temporary administrators” in a last-ditch bid to bring a bank back from the brink of collapse, according to a document obtained by Bloomberg News.

Authorities would have discretion to fire individuals or the “management body of the institution, in its entirety” when there is “a significant deterioration” in the bank’s financial situation and other steps have failed to turn the situation around, according to the document.

Such action could also be taken when the bank has been guilty of “serious violations of law, regulations or bylaws, or serious administrative irregularities.”

The measures are a component of the EU’s blueprint for tackling failing banks and taking taxpayers off the hook for bailouts. The draft law, proposed last year by EU financial services chief Michel Barnier, would also empower regulators to impose losses on senior creditors and require nations to create so-called resolution funds that could stabilise crisis-hit lenders.

A tentative deal on the bank-management replacement plan was struck by European Parliament lawmakers and Lithuania, which holds the rotating presidency of the EU, at a meeting earlier this month. The provisional accord on manager replacement requires confirmation at a subsequent negotiation meeting.

Talks are continuing on the bank resolution law, which requires approval by the parliament and by national governments to take effect.

The negotiations “are making good progress on all fronts, and we are confident of getting a political deal on the draft law by the end of the year,” Chantal Hughes, a spokeswoman for Barnier, said.

A spokesman for Lithuania’s EU presidency declined to comment and Gunnar Hoekmark, the EU parliament legislator leading work on the plans, declined to comment.

The planned EU powers would allow regulators to send in managers even before a bank has failed. Such steps could be taken as an early intervention measure in a bid to turn the company around, and so stave off more extreme regulator-imposed steps like forced creditor writedowns or the breaking up of the firm.

Regulators “may, based on what is proportionate in the circumstances,” appoint a temporary administrator either to replace a stricken bank’s management or to work alongside the existing team, according to the document. Such appointees wouldn’t normally be in place for more than one year.

The powers of supervisor-appointed bosses would be boosted once a bank has breached its minimum capital requirements and needs to be either rescued or wound down.

- Bloomberg