Brussels, 28/02/2014 (Agence Europe) - Four pooling options for contributions to the future Single Resolution Fund (SRF) for banks are currently being examined by eurozone nations and other member states.
As demanded by Germany (but rejected at the moment by the European Parliament), the Council of Ministers wants the SRF, which will be used to help wind up failed banks, to be set up at first on an intergovernmental basis, but then to be gradually pooled and becoming part of the normal Community system.
Under the ECOFIN Council agreement in December 2013, the SRF will be fully pooled after ten years, with the rate of pooling increasing by 10% a year. By the end of 2025, it will have €55 billion in financing (1% of the covered deposits). The money will come from banks, which will be required to provide €5.5 billion a year (the fund is to come on stream in 2016 and will have a budget of €11 billion in the first year).
Based on talks among finance ministers earlier this month, national experts on the Intergovernmental Conference (IGC) are examining four options for building up the fund. The following options are laid out in a Council of Ministers document dated 21 February that this newsletter has seen (see Twitter @AgencEurope), for the speed at which the national compartments that the fund will initially be divided into will be pooled and the speed of contributions from banks to the national compartment of the countries in which they are registered: - A) the fund would be fully pooled after five years, but the banks' contributions would continue over ten years (in 2020, the €33 billion already allocated to the fund would be fully pooled, along with future annual contributions); - B) the pooling period would not be linear (half in the first few years and then 50% in 2018) but would last eight yeas, as would the time for banks to provide finance (in other words an annual contribution of €6.2 billion rather than €5.5 billion); - C) the pooling period for the fund would not be linear (45% in the first few years and then 55% in 2019) and would last for ten years, as would the period over which banks would be required to contribute; and - D) there would be 50% pooling at the start and this would last until 2020, and then there would be a 10% increase each year until 2025. Banks would be required to contribute over a ten-year period.
A source explains that at the most recent technical discussions, many countries (Austria, Bulgaria, Estonia, Ireland, France, Italy, Luxembourg and Portugal, for example) preferred the first option. The merit of option A is that it would achieve full pooling of the fund in 2020, but its weakness is that bank resolutions would remain in member states' hands over the first few years.
Germany, Finland and the Czech Republic favour the second option. Option B would lead to a substantial portion of the fund to be pooled from the start (€2.3 billion in 2016, €6.3 billion in 2017 and €12 billion in 2018) with a fully pooled fund in 2023. Only Belgium favours the fourth option, and Spain and the Netherlands want to stick to the agreement reached at the ECOFIN Council.
Loans among national compartments. The member states are expected to allow national SRF compartments to lend cash to one another. In the event of a bank resolution, it would only be possible for a compartment to borrow money after it has exhausted its own fund and the SRF's pooled funding. The loans would probably be voluntary, according to a draft intergovernmental agreement dated 21 February that this newsletter has seen (see @AgencEurope).
A country whose national compartment is asked to lend to a fellow compartment would be able to object to the loan in the first few years (possibly the first five) of the SRF if it itself needs the requested funds, if the amount is above a certain percentage, possibly 10%, of the non-pooled cash in the national compartment or if it feels that the country whose national compartment would receive the loan does not provide enough guarantees that the money would be reimbursed. (MB)