EU talks drag on in row over funding source in case of bank crash
While there is agreement on the outline of the Single Resolution Mechanism and the Single Resolution Fund, the details have proved a major sticking point. The EU has given itself a deadline of the end of the year to reach a decision.
Banks themselves will be expected to at least partially fund any rescue or wind-up, with €473bn having been injected into the European banking system since 2008.
There is general agreement that the resolution fund will initially be established with national compartments into which banks will put their levies. And with 10% a year going into a mutual fund over 10 years, the total put in by some would be around €55bn.
What would happen if demand exceeds the sums available is a major issue. Germany insists the backstop would be provided by the member state, which could borrow from the ESM in a similar arrangement to Spain.
Others, including France, believe the ESM should be able to lend to the bank fund without involving the national government.
Finance Minister Michael Noonan said he did not expect the ministers to reach agreement overnight but hoped to discover the common ground and find a solution before Christmas.
He described the proposals on governance as very complicated, pointing out that resolving a bank needed to be done over a weekend.
He said a backstop was needed for credibility purposes and that it had to be significant.
Germany has said the fund itself will provide a sufficient backstop and that no other safety net would be required to protect taxpayers.
But the disagreements range wider than just the member states, as the European Parliament — which has to agree to any deal — says the commission, acting as the resolution authority, should have the power to decide to wind down a bank while only the bank supervisor should be able to propose that such a step be taken.
The parliament also proposes that a resolution fund, set up within 10 years and to be solely funded by the banks, could initially tap loans from other instruments, including the ESM.
The parliament sees this as its starting position for negotiations with member states, which are due to begin in January and finish by March.
Other issues to be discussed and agreed upon by EU finance ministers at their meeting today include at what level decisions will be taken — either by a large plenary representing all countries or by a smaller, more centralised board.
Some countries want member states to have a veto when taking decisions on failing banks. This is being opposed by MEPs.
Corien Wortmann-Kool of the centre-right European People’s Party, the largest group in the parliament, said: “This council approach will not work. At the peak of the credit crisis, we saw how difficult it was to deal promptly with struggling cross-border banks.
“It showed the need for a genuine European approach.
“This is what we are ensuring today, in the interest of many European citizens,” Ms Wortmann-Kool added.
