Brussels, 06/12/2013 (Agence Europe) - The Ecofin Council will try to make progress so that the single bank resolution mechanism (SRM) can be set up in 2015, although agreement is not expected yet.
On Friday 6 December, the finance ministers of Spain, France, Italy and the Netherlands were in Berlin for talks with the German finance minister ahead of the meeting on Tuesday due to be attended by the European Commission and the European Central Bank. “We know all the various elements of what a final agreement could be”, said Chantal Hughes, spokesperson for EU Internal Market Commissioner Michel Barnier.
There is a long list of outstanding issues. Top of the list is the choice of European institution to endorse decisions taken by the board of representatives of national resolution bodies. Stressing the importance of urgent, rapid and effective decisions, most of the member states are convinced that it should be the European Commission that endorses the decisions. This is also the view of the Commission and the EP. Germany, backed by Romania and the Czech Republic, opposes this, despite the practical problems of taking urgent decisions when there are 28 different authorities involved and countries that are not part of banking union. There is a clause whereby ministers can veto the provision of national public funding for winding up a bank.
There are ideas galore about membership of the resolution board (such as whether full-time “independent” experts should be on the board) and how voting would take place on it (decisions to be taken in plenary and decisions to be taken by the board, vote weighting between county of origin and host country for cross-border banks.
The related issues of the scope of application and the single resolution fund will not be decided upon at this stage. Isolated, Germany says that all 6,000 banks in the eurozone should not be covered by the SRM. It recommends a two-pronged system along the lines of the single supervision mechanism (SSM) whereby the ECB directly supervises the biggest 128 banks representing 85% of all bank assets in the eurozone from November 2014 onwards. Berlin is also unhappy about the challenge to the German regional bank solidarity system, IPS. Most countries at the Council of Ministers say that this system would make it complicated for cross-border banks that are still supervised at national level and would increase the bailout costs for small banks, particularly in struggling countries. A diplomat says it would not be acceptable to have a system that encourages bailouts in rich countries and bail-ins in poor countries. In order to reach agreement, the Lithuanian Presidency suggests giving more powers to national authorities for drawing up the resolution plans for small banks within the single resolution mechanism.
The regulation provides for the setting up of a single resolution fund with a budget of €55 billion to €60 billion, financed by industry ahead of any crisis. If all banks are covered by the SRM, then the creation of such a fund makes sense, but Germany will have to be won over and convinced that German banks will not have to pay for mistakes committed by banks in other countries. A diplomat commented that nobody was talking any more about a network of national funds so progress has been made on a single fund. In order to reconcile the countries' views, an intermediate solution of a single fund with “national compartments” is being considered.
Many countries, including Portugal, are calling for the establishment of a backstop for the resolution fund, especially for the first ten years. The legal basis, Article 114 (single market), for the draft regulation bans the use of public money, so work will continue at the Council of Ministers in 2014 on the option of an intergovernmental agreement in this domain (see EUROPE 10978). If this is done, then the European stability mechanism (ESM) would be able to grant the fund a preventative credit line (long maturity subordinated loans).
The talks at the Council of Ministers on the SRM will take place shortly before talks between the Lithuanian Presidency and the EP on the BRRD Directive harmonising national resolution schemes (see related article). The directive spreads throughout the EU bail-in tools whereby a bank's shareholders and lenders will have to contribute to the wind-up costs according to a set hierarchy before any public bailout is allowed. One question to be settled is when the bail-in rules would come into force because the earlier the bail-in, the less need for public cash (see EUROPE 10978).
A related question is the harmonisation of deposit guarantee schemes (DGS), the third arm of banking union, which will remain at nation state level in the medium-term. France, in opposition to the Netherlands, says that the resolution fund should be allowed to lend to DGS in order to protect individuals and small businesses whose savings are below the €100,000 mark. (MB/transl.fl)