Brussels, 09/07/2013 (Agence Europe) - On Wednesday, the European Commission will unveil draft legislation to establish a European bank resolution authority and fund by 2015.
After European common supervision, common bank resolution is the final part of the European Union's new banking union, an institutional set-up that all 6,000 banks in the eurozone will join (see EUROPE 10861). A high-ranking European Commission official said it would help reduce the current fragmentation of the single market and reduce or remove the need to pump in huge amounts of public money to save failing banks. Since 2008, 16% of the EU's GDP has been used to bail out its banks.
Based on Article 114 of the European treaty (on the internal market), it is hoped that the proposals will be adopted by the end of the current European Parliament using the co-decision procedure (a qualified majority vote at the Council of Ministers and the EP as co-legislator), unlike the draft legislation to set up a common bank supervisor that gives new powers to the European Central Bank (which requires unanimous voting at the Council of Ministers, with the EP only being consulted). The common supervisor will implement capital requirements while the common resolution authority will implement the directive on bank restructuring schemes currently being negotiated by the Council of Ministers and EP (see EUROPE 10876).
The resolution authority will have a management committee comprising the 17 national authorities in the eurozone, a chair and a vice-chair (both appointed by the Ecofin Council with the EP's approval), the ECB and the European Commission. As requested by France and Germany (see EUROPE 10857), the committee will be based on the national authorities because it is they which prepare bank resolution plans for each bank and wind up the banks registered in their country in line with national rules. For each bank covered by the system, sub-committees will be set up, which will comprise only the national authorities potentially involved in restructuring the bank in question. The Commission will grant national authorities in the country of origin and host country equivalent decision-making powers.
The management committee will take all the decisions connected with winding up a bank (coordination positions, harmonising practices, deciding on the ins and outs of the restructuring, making use of the bank resolution fund), but one decision will be in the hands of the European Commission - when to trigger a resolution based on a recommendation from the committee. The above-mentioned European source says that this is the only workable solution. Legally, the Commission cannot be connected with a committee recommendation, but it would be highly unlikely for it to take an opposing decision. Market pressure will also restrict the options available and the Commission will continue to play a key role when it comes to deciding whether to authorise state aid.
Common resolution fund. The bank resolution fund directive requires eurozone member states' resolution funds to gradually combine to form a central fund, financed by the financial industry ahead of any crisis. The fund must have 1% of the deposits covered by it by the first decade of it being created, in other words some €55 billion given present levels of bank deposits, says the Commission. The amount banks will have to contribute will be decided in line with their type of business and risk profile.
If a bank is unable by itself to raise the capital it requires and there is not enough cash in the resolution fund, then the European stability mechanism (ESM) may provide some cash as a last resort, under certain conditions, through a bail-in of shareholders and bond-holders, even during the 2015-2018 period before the bank resolution directive comes into force. The above-mentioned source says that the option of using public money remain, but has been slimmed back. It will not be possible to force member states to use public money to bail out a bank. This is likely to reassure Germany, which is not happy about the idea of the money of German banks being used to bail out failing banks in other countries. German newspapers say Berlin would take legal proceedings against the introduction of any rules requiring money provides by German banks to be used potentially to bail out banks in other countries. Germany is reported to be working on an alternative that would give the ESM powers over bank resolution, to ensure there is unanimous decision-making.
The Commission says that scrapping burden-sharing for a bank resolution is one of the very reasons for setting up a common resolution fund. The above source says that there is no disagreement with Germany about the fact that this is a good system, and the Germans believe that the current treaty does not allow such a system to be applied. The Commission, said the source, has a different reading and says that bailing out a bank in country A with the cash of a bank in country B is possible with a system based on Article 114 (on the single market). On Tuesday, Euro Commissioner Olli Rehn said the Commission's proposals would be carefully balanced, yet ambitious and would comply with the European Community framework. (MB, EL/transl.fl)