Brussels, 10/07/2013 (Agence Europe) - On Wednesday 10 July, EU Internal Market Commissioner Michel Barnier unveiled what he said was a “unanimous” proposal from the European commissioners for a common bank resolution system that will apply to the 6,000 banks in the eurozone by 2015 and will be the second stage of banking union (after the common bank supervision mechanism, see EUROPE 10884).
With this proposal, the Commission has given itself a key role, as the trigger for the bank resolution process within the banking union area in the future. The rules governing bank resolution are being negotiated by the Council of Ministers and the European Parliament in the form of a directive on national bank resolution schemes, which the legislation unveiled on Wednesday would merge into a single EU bank resolution body. The EU mechanism would not apply to a bank that is closed down.
The Commission's decision to trigger a resolution would be based on recommendation from a committee that Barnier said would have the status of an EU agency. The committee would have all resolution powers apart from those conferred upon the Commission and would comprise national authorities that are involved in the common supervision system, (vice-) presidents, the ECB and the Commission. National authorities are in the best position for ensuring application of a resolution plan in their own country under their own rules. In time, the agency will have 300 members of staff and the cost of running the agency will be met by the financial industry. The city where the agency is to be located will be a matter for horse-trading among the participating countries.
For each bank, the committee will be reduced to sub-committees of varying sizes, comprising national authorities directly involved in the bank's restructuring and representatives of the European institutions. Decisions will be taken within the committees by a simple majority vote. The host country will have a vote and the total decision-making power of the countries where the bank is located will amount to one vote in order to ensure parity.
European resolution fund. Barnier said that the Commission's idea of pooling national funds into a single European bank resolution fund was the least it could do. The idea is that the fund would have some €55 billion by 2025 (1% of the savings covered) and for the cash to come from the financial industry. Where a restructuring fund is already in existence, the country can decide to gradually transfer the cash in it into the common European fund.
In the event of restructuring, a bank would be required to mobilise funding itself from the markets or selling off some of its business. After 2015, the single resolution mechanism will be able to require a bail-in of shareholders and junior bondholders and provide cash from the common resolution fund that is being set up. After 2018, the bail-in rules from the new bank resolution directive will come into force. If necessary, public money can be made available in line with the new Commission state aid rules (see related article). The European stability mechanism (ESM) may be able to intervene as a last resort by providing credit to the common resolution fund or directly recapitalising struggling banks, in which case the guidelines finalised by the Eurogroup would apply (see EUROPE 10872).
In order to reassure countries like Germany that don't want any German money from either the public or private sectors to be used to bail out banks in other countries, member states have been granted veto rights. Barnier said that, if public money were needed, the finance minister of that country would have to endorse it. The legal basis for the new legislation (Article 114, internal market) does not allow public money to be used, explains his circle. The Commissioner says it is possible to take action under the current treaty, but has not ruled out changes to the treaty in the future to “consolidate” the system. (MB/transl.fl)