EU aims for deal on tackling failing banks this week

March 10, 2014 - 1:07:38 am
BRUSSELS: European Union governments and parliamentarians will try to reach a compromise this week on how to wind down failing banks, in marathon talks intended to settle who decides to close banks and who picks up the bill.

A deal in the negotiations, set to span three days, would be the final step in a European banking union that would mean one supervisor for all eurozone banks, one set of rules to close or restructure those in trouble and one common pot of money to pay for it.

The banking union, and the thorough clean-up of banks’ books that will accompany it, is meant to restore banks’ confidence in one another and boost lending to other businesses and households.

New lending has been throttled by banks’ efforts to raise capital and reduce the bad loans that proliferated in the recession triggered by the global financial crisis and deepened by the eurozone’s own sovereign debt crisis.

Policymakers agreed last year that the European Central Bank (ECB) will be the single supervisor for all eurozone banks and the ECB will take on its new responsibilities from November. But talks on a single European agency to wind up or close failing banks, and on a single fund to back it up, have entered a crucial stage: EU governments, represented by finance ministers of the 28-nation bloc, and the European Parliament must reach a deal next week. If they don’t, there won’t be enough time to complete the legislative process for the resolution mechanism before the last sitting of the current parliament in mid-April. 

The key law would be delayed by at least seven months, probably more. “The ground is very well prepared, now we have to show political will. We will stay there (in the meeting) as long as it takes to find a solution,” one EU official involved in the preparations for the talks said. “It’s clear to all EU member states that if we want to achieve an agreement there’s only one direction to go — to try to accommodate the parliament,” the official said.

The problem is that European governments and the European Parliament want different things.

EU finance ministers agreed in early December that a decision on closing down a bank in the eurozone would be taken by the board of the resolution agency, but that decision must be signed into law by the EU’s executive Commission and by all the EU finance ministers.

The European Parliament wants no involvement of EU finance ministers, arguing it would politicise the process.

Parliament also wants the ECB — the supervisor of all banks — to be the only institution that can declare a bank is failing and that its fate has to be resolved. EU governments want the single resolution agency board and national authorities to have a say.

Governments and parliamentarians also disagree on how quickly to build up the shared resolution fund and how soon all the money in it should be accessible to all countries. The fund will be filled from contributions of all eurozone banks and is to reach, eventually, around ¤55bn.

Governments want the fund to reach full capacity over 10 years and agreed the amount of money that would be available to all eurozone countries would increase by 10 percent each year, so that the fund would be fully mutualised after a decade.

In the meantime, if a eurozone country does not have enough money accumulated from the contributions of its own banks to cover the costs of closing one, its government would have to come up with the cash. If it cannot borrow that from the markets, it could ask the eurozone bailout fund for a loan.