Brussels, 05/12/2013 (Agence Europe) - The member states are continuing with the lengthy process of negotiations to introduce a single resolution mechanism (SRM) for banks, and the Ecofin Council of Tuesday 10 December is not expected to reach agreement in principle on the matter.
A major negotiating point in this ultra-sensitive question is the option of a public backstop for the bank resolution fund that might be set up at EU level, which would have a budget of between €55 and €60 billion to finance the winding-up of banks in the eurozone. In a progress report dated Monday 2 December, the Lithuanian Presidency says that several delegations are sticking to their view that agreement on a common backstop is a key element for the credibility of the SRM. Portugal, which has issued a specific proposal, is one of the countries at the forefront in this issue. It is backed by Spain, France and Ireland. The European Parliament will vote on the draft Ferreira report on Tuesday 17 December and seems to support this line, wanting the single resolution fund to be built up in the first few years after it comes on stream (see EUROPE 10975).
One of the obstacles to be overcome is the legal basis for the draft legislation (Article 114 of the EU treaty on the single market), which bans the use of public money. At the meeting of member states' permanent representatives to the EU (Coreper) on Wednesday 4 December, the German representative said that the backstop issue should be dealt with separately. Germany is opposed to the European Stability Mechanism (ESM) giving preventative credit to the single resolution fund because it would rather see a network of national resolution funds than a single fund. Backed by the Netherlands, it also rejects the idea of preventative credit from the ESM for national savings guarantee funds that might run out of money when winding up failing banks.
On Wednesday, the Council of Ministers' legal department said that a two-stage approach was plausible. A common resolution fund would be set up first while the existing national resolution funds remain in place (this is possible under Article 114). Then a genuinely common fund (a single fund could be set up based on an intergovernmental unanimous agreement, in which case an agreement on the creation of a backstop would be feasible). More study is needed and national experts will continue to study the matter alongside the negotiations for the setting up of the SRM. The Lithuanian Presidency says the work will continue in 2014, warning that any desire to connect the backstop question with the SRM creates a serious risk of causing great delays in the SRM project. The European Council wants the resolution side of banking union to be settled before the end of the current European Parliament in the spring of next year.
Bail-ins. The negotiations on the SRM are closely connected with the talks on the draft BRRD Directive to harmonise national resolution schemes. The directive would extend throughout the EU bail-ins to get money from shareholders and other bank lenders during the winding-up of a bank before any public money is used. Although Germany, Finland and the Netherlands have always called for the bail-in measures to come into force rapidly, the agreement in principle at Council of Ministers' level says that bail-ins would not apply until 2018. The EP suggests 2016. On Wednesday, several delegations (such as Luxembourg and Spain) said they were prepared to consider earlier introduction of bail-ins. At this stage, France is not prepared to change its views. (MB/transl.fl)