Banking union ‘becomes a reality’

Eurozone nations did what was once said to be politically impossible — sign an agreement on pooling money to deal with crisis-hit banks.

All EU governments except the UK and Sweden signed the plan, which sets out how nations should transfer monies raised from levies on their banks to a central fund that could be tapped in crises.

The fund is part of a broader move to joint supervision and crisis management of eurozone banks other EU nations can sign up to voluntarily. The signing took place at a meeting of ambassadors yesterday in Brussels.

“The resolution fund will ultimately provide a degree of stability in times of financial stress,” David Ereira, partner at law firm Linklaters in London, said.

Michel Barnier, internal market and services commissioner, has said the project to build a banking union is the bloc’s most ambitious step since the creation of the euro.

The first plank of the system will take effect on November 4, when the ECB assumes oversight of about 6,000 eurozone banks. Putting in place a common resolution system for banks will follow next year. The single fund, underpinned by the deal, will be filled over eight years a target of €55bn.

While eight non-euro nations signed the inter-governmental agreement, doing so doesn’t commit them to joining the planned banking union. That would require ratifying the agreement, and taking a further decision to take part. The UK and Sweden said they have no plans to be involved.

Mr Barnier called on the 26 signatory nations to ratify the agreement by 2016, when transfers to the fund are scheduled to start.

“Together we have turned the idea of a banking union into reality in less than two years,” Mr Barnier said. “We must now keep up this momentum to make it fully operational without delay.”

While agreements have been reached on the key legal planks of the Single Resolution Mechanism, issues remain unresolved, including how to calculate the size of the levies that individual banks should face.

The European Commission will make a proposal on this “in the coming months,” it said yesterday. The plan will need approval from national governments to take effect.