Brussels, 06/06/2013 (Agence Europe) - On Wednesday 5 June 2013, the EU College of Commissioners agreed on a number of fundamentals for draft legislation to set up a eurozone bank restructuring mechanism (single resolution mechanism) to be presented by the European Commission ahead of the European Summit of 27 and 28 June (see EUROPE 10859).
What is needed is a central board at EU level, responsible for applying EU bank restructuring legislation, said a European source. The Commission is convinced that a simple network of national authorities would not be able to react fast in the event of a crisis (often in the space of a weekend) and would not be able to settle disputes among national authorities.
The European Commission says the central board to be created should be given legal personality and the source says it will most likely be made a European agency. Its composition will reflect that of the Executive Committee to be set up at the European Central Bank for supervising banks covered by the eurozone single bank supervision mechanism. In this connection, national restructuring bodies would have an important role to play, as demanded by France and Germany (see EUROPE 10857) as they understand their own banks very well and will be required to fine-tine banks' living wills laying down what is to happen to them if they fold. The authorities are also best placed to implement restructuring decisions, decisions that will be taken centrally, explained the source.
It will not be the European agency's job to say when a bank has reached (or is reaching) the point of no-return, which is a decision for the national authorities (and would be the first stage in the restructuring process). After this first stage, the European agency would assess the situation and make a recommendation on the need to restructure the bank or let it fold. The recommendation could be prepared by the national authorities alone, as part of the restructuring board for the bank in question, without necessarily involving the other authorities in the European agency. The source says the important thing is for the committee to be structured in such a way that it takes effective, speedy decisions in the interest of financial stability, adding that the recommendation would be sent to the Commission for approval, although it could be any other European institution that approves it, apart from the ECB, which as the European bank supervisory body would not be allowed to do so.
Single Resolution Fund. EU Internal Market Commissioner Michel Barnier has already made it clear that he is planning to suggest the establishment of a common bank resolution fund, part of whose funding would come from banks themselves. Countries that already have a national fund could take cash from that fund to pay part or all of their contribution to the EU fund before requiring banks in their country to chip in. The source says that the amount to be paid by each country would be calculated under the directive currently in discussion between the Council of Ministers and the EP (see related article).
At the moment, explained the source, there is no other system than the injection of public funds to bail out a failed bank, and the 2008 financial crisis forced countries in Europe to bail out banks using taxpayers' money amounting to around a third of EU GDP. Some 30% of this aid was used to recapitalise failing banks, an unprecedented bailout. The Commission hopes the new rules on restructuring and bank capital requirements will mean that no more public money will be fed into the banks in future. (MB/transl.fl)