Brussels, 04/06/2013 (Agence Europe) - On Wednesday 5 June 2013, the College of EU Commissioners will discuss the draft “single (i.e. common) bank resolution mechanism” to be unveiled by the Commission ahead of the European Summit, probably after agreement in principle on the EU directive covering national bank restructuring systems that it hopes will be struck at the Ecofin Council on Friday 21 June.
One of the key aspects of the new legislation is “governance” of the mechanism under the current EU treaty, explained a European source, saying that the Commission wants to be the central body at EU level that has the final say on whether a eurozone bank should be restructured or not, whether or not the bank is directly supervised by the European Central Bank (ECB), which will soon be made the common bank supervisor, according to news leaked on Tuesday 4 June to the Financial Times.
It has been agreed that the ECB, as the common or single supervisor, will not be able to wear the hat of bank restructuring authority. Based on the Meroni case (case 9.56) of the European Court of Justice, the Commission says that neither the European Banking Authority (EBA) nor a special EU body set up for the purpose would be able to become the European bank restructuring authority, hence its wish that it be suggested to member states that the Commission is best placed to carry out this task. It is not clear at this stage whether Internal Market, Economic Affairs or Competition would be the lead department.
In order to prepare its own bank restructuring decisions, the Commission imagines a management body would be set up, which would involve the ECB and even the member states as well. The body could operate the way the European anti-fraud office (OLAF) does and be given the job of making recommendations to the Commission. Once it has been decided to restructure a bank, it will be for the national authorities to implement the decision, with EU scrutiny, explains the FT.
A recent Franco-German statement about the immediate future of economic and monetary union (EMU) recommends a similar approach to the Commission's (see EUROPE 10857). A lot of work has been done over the past six weeks, explains the above source. France and Germany make several recommendations about the “Single Supervisory Mechanism”, including the creation of a “single resolution board involving national resolution authorities and allowing quick, effective and coherent decision-making at the central level.”
Common fund. The Commission will suggest setting up a common bank restructuring fund financed by the banks. Each year, the countries in the single mechanism will contribute their share of cash, the amount to be paid depending on the level of risk taken by the country's banking system. A country's contribution can be provided by a national restructuring fund, but will need to be supplemented if there is insufficient cash in such a fund. On the financing question, France and Germany do not go as far as this, recommending contributions be made by banks: “The single resolution mechanism should be based on contributions by the financial sector itself, thus pre-financing over time an appropriate and effective private backstop arrangement building on national private backstop arrangements... With private backstop elements growing in importance over time, the ESM should play the role of an additional public backstop both through lending facilities to member states or direct recapitalisation based on the operational criteria still to be decided.”
As far as the Commission is concerned, the main problem will be establishing a mechanism based on clear rules that preserve the integrity of the single market. It doesn't want a system where banks in rich countries are bailed out with public funds and banks in poor countries are bailed in, raiding the investments of shareholders, bond-holders and unprotected savers, explained the above source. (MB/transl.fl)