Schaeuble disagrees with ECB over attempt to pool bank levies

German Finance Minister Wolfgang Schaeuble has squared off with the European Central Bank over the pace of pooling bank levies in a euro-area resolution fund, potentially slowing the proposal’s progress into law.

Schaeuble disagrees with ECB over attempt to pool bank levies

ECB executive board member Benoit Coeure said last week that the proposed 10-year time for merging national contributions to the Single Resolution Fund “is too long and should be shortened, possibly to five years.”

A day later, ECB president Mario Draghi underscored this assessment. Mr Schaeuble countered that halving the time allotted for moving to a “genuinely common” fund, as Mr Coeure put it, would entail forcing banks to pay into the fund in half the time as well, a point contested by some ministers and the European Parliament.

“It is clear that the mutualisation in this resolution fund proceeds at the pace at which the bank levy is paid in,” Mr Schaeuble told reporters inBrussels.

EU countries are trying to reach an agreement with the European Parliament on a proposed euro-area bank-failure authority, the Single Resolution Mechanism, before the assembly adjourns for May elections. The SRM, backed by a single fund, would accompany ECB bank oversight, which begins on Nov 3. The legislation must be approved by parliament and member states.

Under the draft plan, banks from the 18 euro countries pay into national compartments in the fund via a levy toward a target volume of €55bn. Walls between the compartments are then gradually removed until, after the 10-year transition period, they disappear.

“Until everything has been fully paid in, we can’t let member states escape their responsibility that the levy has to be paid in,” Mr Schaeuble said. “That’s the liability and it sets limits. We can’t undermine this mechanism by faster mutualisation.”

Facing pressure from the ECB to accelerate the creation of a common fund to cover the cost of saving of shuttering banks, some EU finance ministers at a meeting in Brussels yesterday, including Ireland’s Michael Noonan, said contributions could be merged in five years, possibly before the fund is full.

Others, like Austrian Finance Minister Michael Spindelegger, supported the link insisted upon by Schaeuble between the pace of payments and merging of national contributions. A shorter pooling period would be counter-productive, he said.

“The more you have to pay into a fund the less is available to lend to the economy,” Spindelegger said. “To do it in five years would probably overwhelm the banks.” Sharon Bowles, chairwoman of the parliament’s Economic and Monetary Affairs Committee, said ministers following Schaeuble’s lead are sidestepping the core issue of joint resources. Half a fund would be better than none, she said.

“How fast the fund is mutualised and how fast it is filled are different things; full mutualisation at five years even if the fund is half-full is possible,” Bowles said.

Resolution has taken on new importance now that the ECB is examining bank balance sheets as it prepares for its supervisory role.

Michel Barnier, the EU’s financial-services chief who presented the original SRM proposal, said yesterday the “pace of mutualisation” is open for discussion in the member states’ negotiations with parliament on a final version of the bill.

Bloomberg

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