Dublin, 15/04/2013 (Agence Europe) - On Friday 12 April 2013, the Ecofin Council confirmed the agreement in principle on introduction of a eurozone bank supervision mechanism under the aegis of the European Central Bank, as agreed in March by the Irish Presidency of the EU Council and representatives of the European Parliament, although Germany still says that a change of treaty will be needed to give the new system a proper legal basis (see EUROPE 10810).
EU Internal Market Commissioner Michel Barnier welcomed the determination of finance minsters to make progress on banking union, in the eurozone at least, through unanimous and formal agreement on the eurozone bank supervision mechanism. The deal will now be endorsed by member states' representatives (Coreper) this week, paving the way for it to be formally adopted. The ECB will directly supervise big European banks (those with total assets of more than €30 billion) and will have until around this time next year to bring the new system into operation.
To counter Germany's concerns, the finance ministers will add a statement to the legislation pledging to look constructively at any suggested change to the treaty to give the mechanism a legal foundation, introduce fair treatment for non-euro nations and hive off monetary policy from bank supervision at the ECB (see EUROPE 10826). Barnier says that if the treaty is changed, it will be to consolidate elements of banking union that are already operational, but the most important thing was for banking union to operate under the current treaties, as the European summit requested.
“Banking union only makes sense ... if we also have rules for restructuring and resolving banks. But if we want European institutions for that, we will need a treaty change”, said German Finance Minister Wolfgang Schäuble.
In their statement, the ministers commit to urgently completing all the elements of banking union defined by the European summit. A number of countries, including Spain and the Netherlands, say that it must be put in writing exactly what banking union is. Germany doesn't want this. Irish finance minister Michael Noonan said that progress on banking union must ensure the integrity of the internal market.
Bank restructuring. After recent upsets over Cyprus, the ministers say faster progress must be made to ensure harmonised rules are introduced for bank restructuring. This will require the adoption by June of two draft legal documents, one harmonising bank resolution systems and the other harmonising savings guarantee systems.
The draft directive being negotiated on bank resolution introduces a series of tools national bank supervisory systems can use to take action before a bank goes bankrupt or to cut the cost to taxpayers of dissolving a failed bank. Banks will have to draw up living wills of action to be taken in the event of bankruptcy or collapse. Barnier says that bank supervisory bodies will have the power to put a stop to dividends, ban risky trading and change a bank's management team.
Bail-ins. The new directive will include bail-in systems for raiding the assets of shareholders, investors and savers with more than €100,000 in order to bail out a bank. This brought a sharp reaction by Cypriot investors and this part of the directive will be subject to fierce political debate.
Jörg Asmussen of the ECB Executive Board says that bail-ins are not a problem as such, but rejected the idea that Cyprus is a model for future bank bailouts: “The urgent adoption is important so that there is up front clarity about a harmonised resolution framework in Europe and this framework should also include bail-in options from the offset and depositor preference. The whole purpose is to resolve banks without using taxpayers' money while at the same time maintaining financial stability”. He says the new rules must be compatible with the United States' FATCA rules and the main aim is to restructure banks without taxpayers' money while guaranteeing financial stability.
It will be for the European legislator to decide on the extent and details of bail-ins. Barnier pointed out that the first to have their assets raided will be shareholders, then junior investors, then senior investors and last, if necessary, savers with more than €100,000. The Commission is not opposed to the bail-ins starting in 2015 rather than 2018, as requested by Germany, France and other countries.
The commissioner said that once all this has been done, the Commission will unveil in June the second raft of banking union measures (the first being the eurozone bank supervision mechanism), namely an EU bank resolution authority and an EU bank resolution fund. It is hoped that this second stage will be complete by the end of the current European Parliament in more or less a year's time. (MB/transl.fl)