Brussels, 24/06/2013 (Agence Europe) - The mammoth Ecofin Council that ended in the early hours of Saturday 22 June (see EUROPE 10872) was unable to reach agreement on the draft directive on bank resolution schemes and will meet again for new talks in the evening and night of Wednesday 26 June, a few hours ahead of the European Summit.
On Saturday 22 June, Irish Finance Minister Michael Noonan said they had made substantial progress, but a few key elements still required a solution. He said that most countries supported the idea of excluding individuals and companies with deposits of more than €100,000 from the bail-in process for failed banks, but the deposits of large companies with more than €100,000 would be partially raided. Whatever happens, deposits of up to €100,000 will be protected by savings guarantee systems.
As was seen with Cyprus, the draft legislation's starting point puts bank shareholders and bond-holders in the front line for contributing to a bank restructuring in order to put an end to struggling banks demanding massive bail-outs from the state. Such public bailouts currently stand at nearly a third of the value of total EU27 GDP. On Friday, the ministers focussed on interaction between the design of bail-in systems and their hierarchy of liable private lenders; the minimum size of bank resolution funds in the member states; and the minimum debt level (MREL) that banks must hold on their balance sheet and that can be used for a restructuring.
Many member states, France and Sweden for example, are calling for the option of deciding which deposits to raid on a case-by-case basis for each bank. Other countries, like Germany, Finland and the Netherlands, want the rules to be as harmonised as possible, to prevent an uneven playing field, as does the European Commission. In a press release, EU Internal Market Commissioner Michel Barnier said that a clear hierarchy was needed for bail-ins that allowed flexibility for national bank resolution authorities, subject to certain rules. The EU is not a federal system, there are more than 8,000 banks of very different types and therefore member states must have some room for manoeuvre, but the Commission feels it is essential for this flexibility to not damage the single market and the Commission's other big objective is to avoid the playing field becoming so uneven that it would amount to bailouts for countries that can afford it and bail-ins for the rest.
In order to strike a balance between these views, the most recent draft compromise devised by the Irish Presidency, which this newsletter has seen (cf @AgencEurope), suggests that shareholders and lenders should cover a minimum amount of the bank's losses, 8% of the eligible instruments, including capital. After this level, national resolution authorities would have the power to exclude other investors from having their deposits raided. This power would be “exceptional” in the sense that it would need to be justified to ensure the bank's critical operations continued and there would be rules in the sense that it could not exceed 5% of total eligible instruments or amounts collected over three years by the national resolution fund. Once bail-in exclusions have been decided at national level, the remaining losses would have to be absorbed by raids on lenders.
France wanted more. France is happy that the latest draft compromise gives the option of national bank resolution authorities making use of other financial systems for absorbing the remaining losses and recapitalising banks. Such systems must be subject to strict conditions, including approval by the European Commission. Germany and the Netherlands oppose this because they say it paves the way for new bailouts.
Alongside the disagreements among member states, some commentators point out a lack of legal coherence in the draft compromises unveiled by the Irish Presidency of the Council of Ministers. A European source wondered whether this was deliberate or simply due to fatigue. The draft deal will to be discussed at the Council of the EU before Wednesday.
The failure to reach agreement at Ecofin delays the opening of inter-institutional talks on this directive with the European Parliament and also delays the unveiling of a proposal by the European Commission for establishing an EU bank resolution authority, draft legislation that Barnier had hoped to publish over the next few days. Gunnar Hökmark (EPP, Sweden), the EP rapporteur, commented: “I regret that Finance Ministers were unable to reach a common position on the Bank Recovery and Resolution Directive. Unless they find a solution quickly, we will run the risk of a severe delay for the entire procedure. The matter of flexibility was the main stumbling block for Finance Ministers and to sort out this issue, I would urge them to have a look at the Parliament's text which provides for a realistic and robust approach through its Government Financial Stabilisation Tools” (see EUROPE 10849). (MB/transl.fl)