EU chief backs call for faster bank fund

Michel Barnier, the European Union’s financial- services chief, has joined calls from the European Central Bank (ECB) for faster pooling of a planned euro-area fund to cover the costs of saving or shuttering banks.

Meanwhile, it has been reported that declining inflation expectations will prompt the ECB to cut its refinancing rate to 0.1% at its policy meeting tomorrow.

ECB president Mario Draghi would consider ending the sterilisation of crisis-era bond purchases if he’s openly backed by the Bundesbank, two euro-area central bank officials said, asking not to be identified. This would boost liquidity in the euro-area system.

Mr Barnier told the European Parliament in Strasbourg that he’d support the removal of national divisions in the bank-financed fund over five years, half the time foreseen in a German-led plan agreed on by EU finance ministers last year. Under Barnier’s approach, as much as 40% of the fund would be pooled in the first year.

A compromise blueprint would see the fund pooled over seven years at a rate of 15% per year, he said.

The fund is a key part of an EU plan to build a Single Resolution Mechanism (SRM) to handle crisis-hit euro-area banks. Parliament negotiators are at odds with national governments over the measures, warning the blueprint agreed on by ministers would take too long to come to fruition and is too complicated to ensure quick decisions.

The talks resume today.

Barnier said governments should be ready to compromise with parliament on the substance of the SRM if the assembly accepts the ministers’ decision to establish the financing arrangements for the fund in an intergovernmental agreement rather than in EU law. Governments and the parliament must agree on an identical version of the SRM bill for it to become law.

The fund should be set up in a way that allows nations to borrow from other compartments during the transition phase, Barnier said.

Once it is fully pooled, the planned SRM board should be able to impose levies on banks directly, without needing to use national governments as a go-between, he said.

Negotiators should also explore proposals from the parliament for the fund to have access to a last-resort credit line, he said.

ECB Executive Board member Benoit Coeure said last month 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, Mr Draghi underscored this assessment.

However, last week German finance minister Wolfgang Schaeuble said halving the time would entail forcing banks to pay into the fund in half the time as well, a point contested by ministers and the EU Parliament.

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